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0 
D 
D 


n 


n 


D 


Coloured  covers  / 
Couverture  de  couleur 

Covers  damaged  / 
Couverture  endommag^e 

Covers  restored  and/or  laminated  / 
Couverture  restaur^e  et/ou  pellicui^e 

Cover  title  missing  /  Le  titre  de  couverture  manque 

Coloured  maps  /  Cartes  gdographiques  en  couleur 

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Bound  with  other  material  / 
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ou  qui  peuvent  exiger  une  modifteation  dans  la  m^tho- 
de  normale  de  filmage  sont  indiquds  ci-dessous. 

I     I  Coloured  pages  /  Pages  de  couleur 

I I  Pages  damaged  /  Pages  endommagtes 


D 


Pages  restored  and/or  laminated  / 
Pages  restaurdes  et/ou  pellicul^es 


r~y  Pages  discoloured,  stained  or  foxed  / 
iJd  Pages  dteolortes,  tachetdes  ou  piques 

I     I  Pages  detached  /  Pages  d^tach^es 

I  \/|  Showthrough  /  Transparence 

I      I  Quality  of  print  varies  / 


D 
D 


D 


Quality  indgale  de  I'impression 

Includes  supplementary  material  / 
Comprend  du  materiel  suppl^mentaire 

Pages  wholly  or  partially  obscured  by  errata  slips, 
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obtenir  la  meilleure  image  possible. 

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possible. 


ThiB  Kem  it  filmed  at  the  reduction  ratio  chectced  below  / 

Ce  document  est  f lime  au  Uux  de  reduction  Indiqui  ci-de*«ous. 


lOx 


14x 


18x 


12x 


16x 


20x 


22x 


24x 


26x 


1 f 


30x 


L_L 


28x 


□ 

32x 


Th«  copy  filmed  here  has  b««n  reproduced  thenki 
to  the  generosity  of: 

National   Library  of  Canada 


L'exemplaire  film^  fut  reproduit  grice  i  la 
ginirosix6  de: 

Biblioth^que  nationale  du  Canada 


The  images  appearing  hare  urt  the  best  quality 
possible  considering  the  condition  and  legibility 
of  the  original  copy  and  in  keeping  with  the 
filming  contract  specifications. 


Original  copies  in       ited  paper  covers  are  filmed 
beginning  with  the  .  _-jt  cover  and  ending  on 
the  last  page  with  a  printed  or  illustrated  impres- 
sion, or  the  bacit  cover  when  eppropriate.  All 
other  original  copies  are  filmed  beginning  on  the 
first  page  with  a  printed  or  illustrated  Impres- 
sion, and  ending  on  the  lest  page  with  a  printed 
or  illustrated  impression. 


The  last  recorded  frame  on  each  microfiche 
shall  contain  the  symbol  -♦.  (meaning  "CON- 
TINUED"), or  the  symbol  V  (meaning  "END"), 
whichever  applies. 

Maps,  plates,  charts,  etc.,  may  be  filmed  at 
different  reduction  ratios.  Those  too  large  to  be 
entirely  included  in  one  exposure  are  filmed 
beginning  in  the  upper  left  hend  corner,  left  to 
right  and  top  to  bottom,  as  many  frames  as 
required.  The  following  diagrams  illustrate  the 
method: 


Les  images  suivantes  ont  M  reproduites  avec  le 
plus  grand  soin.  compte  tenu  de  la  condition  et 
de  la  nettet«  de  l'exemplaire  film*,  et  an 
conformit*  avec  les  conditions  du  contrat  da 
filmage. 

Les  exemplaires  originaux  dont  la  couverture  en 
papier  est  lr,'f,rim*e  sont  filmAs  en  commencant 
par  la  prem.e-  plat  et  en  terminant  soit  par  la 
derniAre  page  qui  comporte  une  empreinte 
d'impression  ou  d'illustration.  soit  par  le  second 
plat,  selon  le  cas.  Tous  les  autres  exemplaires 
originaux  sont  film*s  en  commencant  oar  la 
preml*re  page  qui  comporte  une  empreinte 
d'impression  ou  d'illustration  et  en  terminant  par 
la  derm'Are  page  qui  comporte  une  telle 
empreinte. 

Un  des  symboles  suivanis  apparaitra  sur  la 
derniAre  image  de  cheque  microfiche,  selon  le 
cas:  le  symbole  -♦.  signifie  "A  SUIVRE"   le 
symbole  V  signifie  "F!N". 

Les  caites.  planches,  tableaux,  etc..  peuvent  «tre 
film«s  a  des  taux  de  reduction  diffirents. 
Lorsque  le  document  est  trop  grand  pour  etra 
reproduit  en  un  seul  clich*.  il  est  film*  *  partir 
de  I'angle  sup*rieur  gauche,  de  gauche  *  droite, 
**.***  ''*"*  •"  ^"'  •"  prenant  le  nombre 
d'images  n*cessaire.  Les  diagrammes  suivants 
illustrent  la  m*thode. 


1 

2 

3 

1 

2 

3 

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6 

MICROCOPY   RESOLUTION   TEST   CHART 

lANSI  and  ISO  TEST  CHART  No   21 


1.0 


I.I 


1.8 


^  APPLIED  IIVHGF     I 

^K  1653   East   Mon   SUe^t 

"J5  Rochefiter.    New    Tori.  M609        uSA 

"■SSS  (716)    hQ2  ~  0300  -  Phone 

^S  ('1^)    288  -  ^989  -  Fo» 


Carnegie  Endowment  for  International  Peace 

DIVISION    OF    ECONOMICS   AND   HISTORY 

JOHN  tATeS  CLARK,  OmsCTOR 


PRELIMINARY  ECONOMIC  STUDIES  OF  THE  WAR 


IDITtD   BV 

DAVID  KINLEY 

Prolf.Mi  ol  Polilldl  Economr,  Uirl.enltr  of  Mllnoii 
Membei  •(  Cowaiiue  ol  RcmitcIi  of  ih<  IndowawM 

No.  24 


DIRECT  AND  INDIRECT  COSTS  OF  THE 
GREAT  WORLD  WAR 


ERNEST  L.  BOGART 
Professor  of  Economici,  University  of  IlJinois 


NEW  YORK 

OXFORD  UNIVERSITY  PRESS 

AMERICAN   BRANCH:     35   WEST   32nd   STREET 

LONDON.  TORONTO.  MILBOURNI  AND  BOMBAY 
1919 


n 


COPYRIGHT  1919 

■r  TNI 

CARNEGII    INDOWMINT  TOR    INTIRNATIONAL  PiACI 

2  Jackion  PlACI,  Wainimcton.O.  C. 


Press  of  Byron  S.  Adams 
Washington,  D.  C. 


I 


EDITOR'S  PREFACE 

A  few  years  ago  pamphleteers  and  men  in  public  life  were 
declarmg  that  there  could  not  be  another  great  war  because  of 
the  tremendous  costs  that  would  be  involved.  Saner  students 
of  history  pomted  out  that  cost  was  relative  and  that  no  nation 

exlnsT   tT  ""-T"'"^  ''■™"  ^™"^  •■"'"  ""  ^^°'"  ^^^  »f  the 
expense     The  judgment  of  the  latter  has  been  vindicated  b>- 

or  he  tre  J",  ■  '""'"  ""''''  ^"  "°^  ^  P^^^*'--  ^  recita 
llrH  \'''"*"^°"f  ^^»«  °^  the  great  war  can  not  therefore  be 
regarded  as  worth  while  if  the  pufpose  of  the  recital  is  to  warn 
against  further  wars.  Nevertheless,  it  is  well  that  2  ZZ 
.houd  know  as  fully  as  possible  the  monetary  and  other  costs 

si^l  if^^  '""'•  '"''^  ^"'*^  "•"  ^^'•-  -  -  -"tionary 
signal,  .f  not  as  a  preventive,  for  the  future.     For  this  reason 

should  be  made  to  gather  together  in  one  volume  at  least  the 
more  obvious  costs  of  the  great  war.  Professor  E.  L  Boeart 
was  entrusted  with  the  task.  His  first  study,  in  accordanceTh 
the  wishes  of  the  Endowment,  was  a  short  presentation.     The 

f«^  and  Professor  Bogart  took  the  opportunity  to  go  into  the 
nmter  more  exhaustively.  The  present  presentation  S^therefore 
virtually  a  new  work  much  enlarged  and  improved  not  only  in  a 

the'hl"^.  '."  'f'^^'r^^  *""•  ^'•°'"^'^'-  ^^'^'^  book  shows 
the  handiwork  of  a  scholar  and  yet  presents  the  subject  in  a  way 
that  will  interest  the  general  reader. 

It  would  be  platitudinous  for  the  editor  to  comment  upon  the 
facts  presented  or  to  summarize  the  gruesome  story.  The  figures 
of  direct  expenditures  have  no  significance  to  the  human  mind 
rhey  are  too  great  to  grasp.  Still  more  is  this  true  when  we  con- 
sider the  total  costs,  direct  and  indirect,  even  when  we  attempt  to 
reduce  them  to  an  estimate  of  dollars.    But  no  one  can  estimate 


IV 


KIIITOH  S    I'UIK  \r|-. 


accuralfly  the  value  of  ihc  luiinan  life  lost  or  the  industrial  coi,- 
trilution  to  the  world's  prosjicrity  which  thdr  coiuinuance  would 
liave  meant.  No  u\k  lan  put  into  figures  the  fjreat  economic  loss 
that  the  worKI  has  sulYcred  and  is  sufTeriiii;  from  the  impairment 
of  our  moral,  economic  and  social  sta;idards.  No  one  can  put 
into  arithmetical  values  the  ap-nies  of  heart  and  mind  that  mil- 
lions of  human  lyings  have  felt  in  the  last  five  years  to  the  im- 
pairment of  their  invn  welfare  and  of  their  iftjciency  as  menilxjrs 
of  society.  Trofessor  ISogart's  consideration  of  these  topics  and 
his  resulting  conclusions  are.  in  the  editor's  oi>inion.  fair  and 
reasonable.  I  feel  very  sure  that  the  work  will  serve  a  very  useful 
purpose  l«>th  to  the  general  public  and  to  the  stmlents  of  the  war. 

David  Kinley. 

Editor. 
Ukbana,  Ii.r  inois,  October  j,  igro. 


FOREWORD 

The  cost  of  a  war  i,  measured  in  loss  of  life,  destruction  of 
pio|H.'rty.  loss  of  economic  elV.ciency  and  pr-sttKe.  and  lowering  of 
normal  standards  of  consumption  alor^,     .any  lines.     It  is  im- 
possible to  appraise  such  varied  values  by  any  unit  of  measure- 
ment, and  some  of  them  are  clearly  not  reducible  to  monetary 
valuation.     In  the  following  pages  the  direct  outlays  of  the  gov- 
ernments, which  are  matters  of  usual  financial  procedure,  may 
Ik-  sa.d  to  be  fairly  accurate;  the  attempt  to  estimate  the  indirect 
costs  of  the  war,  however,  is  attended  with  a  considerable  amount 
of  conjecture  and  must  be  reganled  merely  as  the  best  guess 
which  ,s  possible  at  the  present  time.     These  events  are  still  so 
recent   the  necessity  for  haste  has  Ix^en  so  urgent,  that  in  most 
cases  the  govenimc.its  themselves  have  not  as  yet  absolutely  Cor- 
rect  statements  of  their  expenditures,  revenues,  loans,  and  debts 
Mut  m  addition  to  this,  serious  difficulties  have  been  encountered 
m  the  attempt  to  make  an  accurate  presentation  of  the  finances 
of  the  war.     In  the  first  place,  owing  to  the  necessity  for  military 
secrecy  the  governments  have  very  generally  suppressed  certain 
information,  or  have  .stated  it  in  misleading  fashion.     There  has 
also  been  a  very  general  breakdown  of  the  budgetary  system  so 
that  a  regular  presentation  of  expenditures  and  revenues  has  l,een 
completely  lacking  in  mme  countries,  and  has  been  presented 
only  for  civil  expenditures  in  others.     Essential  differences  in 
the  fiscal  systems  of  the  diflTerent  countries  open  the  door  to  the 
possibility  of  error  in  the  interpretation  of  figures,  even  were 
these  piiblished  fully  and  frankly.     War  expenditures  are  not 
distinguished   from  social  and  civil  expenditures;  deficits  are 
juggled  and  concealed;  revenues  from  taxation  and  receipts  from 
government  enterpr-  es  are  not  distinguished;  loans  are  given  in 
gross,  with  no  allowance  for  conversion  or  for  the  funding  of 
short  term  obligations;  lx>nds  have  in  rome  instances  been  made 
receivaole  for  taxes,  but  no  statements  have  been  issued  as  to  the 


VJ 


Ft,  REWORD 


proportion  of  revenues  .ived  in  this  form  or  the  amount  of 
the  debt  thus  ret!  .d ;  the  uebts  themselves  have  in  some  instances 
been  reported  at  iigures  below  the  actuality  in  order  not  to  alarm 
the  taxpayers;  while  on  the  other  hand,  an  effort  has  been  more 
recently  discernible  to  swell  the  debt  statements  to  unduly  large 
figures  in  order  that  the  country  so  doing  might  profit  more 
largely  from  the  possible  distribution  of  an  indemnity  But 
every  effort  has  been  made  in  this  study  to  secure  official  and 
accurate  infonnation. 

For  convenience  in  checking  up  the  figures  in  the  tables  of  this 
study  with  the  original  sources,  the  foreign  currencies  have  been 
converted  into  dollars  at  prewar  rates  of  exchange.    The  pound 
sterling  ($4.8665)  has  been  converted  at  $5;  the  Turkish  pound 
($4.40)  at  $4.50;  the  ruble  ($.5146)  and  yen  ($.4985)  at  50 
cents;  the  krona  ($.268)  and  mark  ($.2385)  at  25  cents-  the 
florin    ($.402)   at  40  cents;  the  leu  and  leva    ($.1946)  '  the 
drachma,  lira  and  franc  ($.193)  at  20  cents.     The  slight  diver- 
gence between  the  par  of  exchange  and  ♦■•  ^  rate  of  conversion  will 
account  for  some  apparent  discrepancies  between  the  figures  in 
this  book  and  those  found  in  other  publications.     As  a  result  of 
this  method,  moreover,  there  has  been  a  slight  overstate-..nent  in 
the  case  of  some  of  the  countries,  and  ;■  slight  understatement  in 
the  case  of  others.     But  in  dealing  with  figures  which  are  still 
open  to  correction,  it  was  thought  that  the  convenience  of  the 
reader  in  reconverting  the  figures  to  the  original  currencies  more 
than  offset  the  slight  variations  involved. 

In  conclusion  the  writer  records  his  indebtedness  to  the  untir- 
ing and  able  assistance  of  Miss  Constance  Agnes  McHugh  to 
whose  cooperation  at  every  stage  oi  preparation  is  due  much  of 
whatever  value  this  study  may  possess. 

Ernest  L.  Bogart. 
Washington.  D.  C. 

June  I,  loiQ. 


CONTENTS 

(jREAT  Britain  , 

Canada    ., 

43 

Australia  e2 

New  Zealand g, 

India    ,e 

" o5 

Union  of  South  Africa go 

France    -^ 

Russia    -  -„ 

ly^^^   ^..... '.'.'.'.'.   142 

United  States »/-. 

Belgium -„- 

J^^^^  '^^""'^"'"'^''^   186 

RoUMANIA    jQ- 

Other  Entente  Allies 294 

Germany  .q- 

Austria-Hungary -,,, 

^oo 

Turkey   _, . 

/5o 

Bulgaria   „ 

Summary  of  Direct  Costs 265 

Indirect  Costs o^r. 

^  -ioy 

Conclusion  ^,^ 

dVif 

Bibliography    ._, 

Index   

331 


DIRECT    AND    INDIRECT    COSTS    OF 
THE  GREAT  WORLD  WAR 


I 


GREAT  BRITAIN 

The  economic  and  financial  position  of  Great  Britain  was  a 
strong  one  when  the  war  broke  out.  The  bad  effects  of  the  Boer 
War  and  of  the  Balkan  Wars  had  by  this  time  been  overcome. 
Credit  was  sound,  business  was  good,  and  a  continued  peace 
seemed  assured.  The  government  finances  were  in  a  sound  con- 
dition, showing  small  surpluses  each  year.  Taxes  had  shown  a 
fairly  steady  increase,  but  this  was  for  the  purpose  of  carrying 
out  a  program  of  social  reform  and  improving  labor  conditions. 
The  position  of  Great  Britain  in  the  international  markets  of  the 
world  was  such,  however,  that  the  first  effects  of  the  war  were  to 
break  down  the  delicate  mechanism  of  exchange  which  had  been 
built  up  with  so  much  care  during  the  preceding  century.  The 
London  banking  institutions  occupied  the  position  of  international 
bankers  for  the  world,  and  when  it  became  evident,  after  the 
Austrian  ultimatum  to  Serbia,  that  war  was  inevitable,  there 
occurred  a  sudden  stc^>page  of  normal  exchange  operations. 
With  the  interruption  of  ordinary  remittances,  London  took 
measures  to  protect  itself.  The  rate  of  the  Bank  of  England 
was  raised  from  3  to  4  per  cent  on  July  30,  then  to  8,  and  finally 
to  10  per  cent  on  August  1.  The  London  Stock  Exchange  was 
closed  on  July  31  in  order  to  prevent  a  mass  of  securities  from 
being  thrown  on  the  market  at  panic  prices.  On  Tuesday,  Au- 
gust 4,  war  between  Great  Britain  and  Germany  was  declared, 
and  the  further  measures  that  were  taken  become  a  part  of  the 
history  of  British  war  finance. 


Banking  and  Currency,  1914 

The  first  thing  to  be  done  was  to  gain  time  for  reflection  and 
the  preparation  of  further  measures  of  relief.  Accordingly,  the 
bank  holiday  which  fell  on  Monday,  August  3,  was  extended 
for  three  days  longer.     On  August  2,  for  the  first  time  in  Eng- 


4  DIRECT  AND  INDIRECT  COSTS  OF  THE  WAR 

lish  histor)-.  a  limited  moratorium  applying  to  bills  of  exchange 
\N  as  proclaimed  for  one  month,  and  the  day  following  was  legal- 
ized by  the  Postponement  of  Payments  Act.  which  included  all 
negotiable  instruments.  This  was  later  broadened  in  scope  and 
extended  to  December  3.  1914. '  A  breathing  spell  was  thus 
provided  durmg  which  the  necessary  adjustments  between  debtor 
and  creditor  could  be  made.  It  has,  however,  been  vigorously 
asserted  by  numerous  competent  English  writers  that  no  such 
legislation  was  necessary. 

The  internal  panic  was  accompanied  by  a  breakdown  of  inter- 
national exchange  which  made  it  impossible  for  Great  Britain 
the  creditor  nation  of  half  the  world,  to  realize  on  her  holdings 
or  to  realize  on  the  debts  due  her  from  capitalists  in  other  coun- 
tries. In  this  emergency  the  government  first  suspended  the 
Bank  Act,  thus  authorizing  the  Bank  of  England  to  issue  notes 
m  excess  of  the  limit  fixed  by  law,  which  required  a  100  per  cent 
gold  reserve  for  all  issues  in  excess  of  $92,250,000.  The  Bank 
did  not  avail  itself  of  the  privilege,  which  indeed  the  government 
made  unnecessary  by  issuing  notes  itself.  The  Currency  and 
Bank  Note  Act  of  August  6  authorized  an  emission  of  $1,125,- 
000,000  emergency  currency  in  $5  and  $2.50  (£1  and  10s.)  notes 
These  were  to  be  issued  to  the  banks  in  sums  up  to  20  per  cent 

Spn^™w/'''^'""^''°"  °^  ^^^^^  ^'  payments  which  became  due  before 

trlct  Sited  tTorr^"  *°.r^  *•'"  ***  "^^<^''="'««='  negotiable  instrumen"  or  co" 
tract  dated  before  August  4.  were  postponed  to  September  4  or  their  due  date 

iepfem£%  {oVc U^rr*^;;  ^'  ^•'""r  P'°vision  postponed  due  da?es  from 
nofhZ^^-n»  °"°''".  ^:  .»"•>  ^y  proclamation  of  September  30  one  month's 
postponement  was  gran  ed  in  respect  to  payments  falling  due  (whether  under 
The,17K°"'  proclamations  or  otherwise)  from  Octol^r  4  to  November  3 
These  three  proclamations  therefore  postponed  to  November  3  navments 
wh,ch  otherwise  would  have  been  due  up  trSeptember  3  Ae  ope?atCn  of 
the  general  moratorium  therefore  came  to  an  end  on  DeceXr  3    and  the 

nJi'^f '"•°1f»*°''!,"T»"^'^  "°'  ^PP'y  '°  ^'aK".  salaries,  liabilities  under  $25  mari- 
time freights,  debts  from  abroad,  dividends  and  interest  on  trustee  n^es- 
n:cnts,  bank  no  es,  debts  due  from  government  old  age  pensions    Mvments 

urirLtr'sTvt^rs^ '''''  "^  ^"'■^-^"'^  ^'""•-"-*-"  actr^orTeS: 

The  Courts  (Emergency  Powers)  Act  of  August  31  1914  however  nnt 
It  w,th,n  the  power  of  courts  to  stay  executions  of  judgments  r^contVacU 
:Z'T'JX'IL7'Z'''  '^"^  -''"''"'^  **•  ^'^  dilTretion^rnS 


u 


GREAT  BRITAIN  5 

of  their  deposit  liabilities,  but  up  to  November  27,  the  banks  had 
taken  only  $65,000,000.  Owing  to  difficulties  in  printing,  the 
emergency  notes  were  not  available  in  sufficient  quantities  on 
the  reopening  of  the  banks  on  August  7,  and  for  the  time  being, 
$2.50  postal  money  orders  were  constituted  legal  tender, '  and 
remained  so  until  February  3,  1915.  The  currency  notes  were 
also  given  the  legal  tender  quality. 

More  important  than  the  provision  of  additional  currency  was 
the  problem  of  assisting  the  banks  to  meet  the  foreign  exchange 
situation.  The  moratorium  had  postponed  the  period  of  settle- 
ment, but  had  not  guaranteed  the  goodness  of  the  bills  coming 
due.  The  failure  of  the  houses  which  had  accepted  them  seemed 
certain  unless  this  could  be  done,  and  no  new  business  would  be 
undertaken  under  these  circumstances.  To  meet  this  situation 
the  Bank  of  England  on  August  13  agreed  to  discount  all  ai>- 
proved  bills  of  exchange  accepted  before  August  4  without  re- 
course to  the  holder.  If  unpaid  at  maturity,  it  could  be  renewed 
by  the  acceptor  at  a  rate  of  2  per  cent  above  the  bank  rate.  At 
the  same  time  the  government  guaranteed  the  Bank  of  England 
against  any  loss  it  might  incur  by  discounting  such  bills. '  Any 
losses  involved,  which  it  was  estimated  might  amount  to  $150,- 
000,000.  were  to  be  charged  up  to  the  public  debt. 

One  of  the  immediate  effects  of  the  war  was  to  drive  the  in- 
surance rates  on  shipping  to  prohibitive  heights.  Upon  the  out- 
break of  war,  rate.s  had  jumped  from  one-fourth  of  1  per  cent  to 
21  per  cent,  and  the  following  week  had  gone  as  high  as  80  per 
cent,  rendering  it  almost  impossible  for  merchants  to  ship  under 
these  conditions.  The  government  accordingly  organized  a  ship- 
ping insurance  office  and  during  the  week  of  August  8  perfected 
its  procedure  for  accepting  rates  on  shipping.  Its  object  was  to 
stabilize  the  insurance  and  in  this  it  was  successful.  When  it 
opened  for  business  it  proclaimed  itself  ready  to  take  risks  at  5 
per  cent;  on  August  7  it  reduced  the  rate  to  4  per  cent,  and  the 


'  E.  Crammond,  "Economic  Aspects  of  the  War." 
(October.  1914),  221:  528. 
T/k"  Economist  (London),  .\ugust.  1914,  p.  306. 


The  Quarterly  Review, 


6  DIRECT  AND  INDIRECT  COSTS  OF  THE  WAR 

following  week  the  open  market  rates  in  competition  with  the 
government  fell  to  2  per  cent.  The  purpose  of  the  act  was  thus 
attained. 

Loans,  1914 

The  next  problem,  after  meeting  the  tanking  and  monetary 
shipping  situation  which  confronted  the  Treasury,  was  that  of 
Ixjrrowing  for  its  own  needs.  The  first  vote  of  credit  to  pro- 
vide means  for  meeting  the  war  expenditures  was  that  of  August 
5.  1914,  for  $500,000,000.  Grants  of  funds  by  Parliament  have 
always  been  made  on  the  tesis  of  carefully  prepared  estimates, 
and  after  extended  debate.  While  the  purposes  for  which  they 
were  to  be  spent  had  been  stated  in  detail,  with  the  advent  of 
war  the  customary  procedure  was  wholly  abandoned.  Votes  of 
credit  without  estimates,  or  with  dummy  or  "token"  estimates 
merely,  in  order  to  preserve  the  form  of  control,  have  been  passed 
blindly  whenever  they  have  been  asked.  The  Chancellor  of  the 
E.xchequer  became  the  supreme  financial  dictator. 

Compared  with  the  expenditures  of  the  continental  belligerents, 
those  of  Great  Britain  during  the  first  few  months  of  the  war 
were  small.  But  they  kept  growing  steadily.  For  the  first  five 
months  of  the  war  they  were  as  follows : 

W.AR  EXPENDITURES   BY  QUARTERS.   1914-15 
Pf '■'od  Number  of  Days    Per  Quarter  Per  Day 

A!?ff"n""-,f  ,ml S  $351,155,000  $5,97.5,000 

?      ,2"»'^1 ^  930.-i90,000  10.115,000 

.Tan.  1-Mar.  3!.  1915 90  1.202,890,000  13.365,000 

Total  and  average 240  $2,484,535,000  $10,352,300 

To  provide  the  sums  thus  authorized,  the  Chancellor  proceeded 
to  issue  Treasury  bills.  These  were  discounted  by  the  Bank  of 
England  and  the  joint  stock  banks.  Due  to  the  interniption  of 
normal  trade,  large  amounts  of  idle  funds  had  accumulated  in 
the  hanks  which  they  willingly  invested  in  Treasury  bills  at  3% 
per  cent.  Owing  to  the  cheap  rate  at  which  the  government  was 
thus  enabled  to  procure  funds,  there  was  a  strong  temptation  to 
rely  on  this  form  of  short  term  debt.     As  the  amounts  involved 


GREAT  BRITAIN  7 

by  the  Treasury  operations  became  greater,  however,  the  huge 
mass  of  Treasury  bills  which  matured  at  short  intervals  tended 
to  become  unmanageable,  and  it  was  necessary  to  fund  them  by 
the  issue  of  long  time  bonds.  The  use  of  Treasury  bills  running 
for  not  more  than  six  months  was  a  customary  financial  practice 
on  the  part  of  the  British  Treasury,  and  at  the  time  of  the  dec- 
laration of  war  there  were  already  outstanding  some  $50,500,000 
which  would  mature  in  the  following  December  and  January. 
During  the  remainder  of  the  year  1914,  six  additional  emissions  " 
were  made  of  $75,000,000  each.  They  provided  the  necessary 
sums  until  a  permanent  loan  was  made  in  November.  The  fol- 
lowing table  shows  the  operations  of  the  Treasury  in  this  regard 
I^etween  August  1  and  December  31,  1914: 

TRE.\SURY  BILLS,  AUGUST  TO  DECEMBKR,   1914 

(In  dollars,  000s  omitted.) 

Amount  Amount 

Date  of  Issue  Maturity  Issued  Subscribed     Issue  Price 

.August  19  February  22,    1915..  $75,000  $210,575  96.35 

August  26  February   28,    1915..  75,000  200,965  9622 

September  16        March   19,   1915 3,750  122,805  97.07 

September  16  September  19,  1915. .  3,750  122,435  96.59 

October  7              .\pril   10,   1915 75,000  152,465  %.95 

October  21            April  24,   1915 75,000  215,810  96.26 

November  4          May  7,   1915 75,000  133,165  96.32 

.\  second  vote  of  credit  was  granted  by  Parliament  on  Novem- 
ber 12,  1914,  amounting  to  $1,125,000,000  and  a  third  for  $185,- 
000,000  on  February  25,  1915,  making  a  total  to  the  end  of  the 
fiscal  year  of  $1,810,000,000.  These  sums  represented  an  amount 
larger  than  could  be  handled  taiisiactorily  by  means  of  Treasury 
bills,  and  accordingly  the  first  war  loan  was  offered  on  Novem- 
ber 16,  1914. 

This  loan  for  $1,750,000,000  onsisted  of  Syi  per  cent  bonds 
maturing  between  1925  and  1928,  issued  at  95.  Their  real  vield 
was  thus  4  per  cent.  Payments  were  spread  over  three  months, 
and  finally,  a  special  privilege  wus  granted  subscribers  in  that  the 
Bank  of  England  pledged  itself  ready  to  lend  upon  these  bonds 
up  to  their  issue  price  during  the  next  three  years;  that  is,  up 
to  March  1,  1918.     Subscriptions  to  the  end  of  the  fiscal  year 


^  DtRKt  T  AND  INDIRECT  (  OSTS  OK  THE  WAR 

,'il*!j  ^^:  '^'^^  '''°"S''*  '"'o  the  Treasury  the  sum  of  $1,480.- 
uw.uuu.  It  had  taken  Great  Britain  eleven  years  ( 1903  to  1914) 
to  pay  off  $450.000.0CX)  of  the  debt  incurred  during  the  Boer 
War  The  savings  of  these  years  were  now  being  spent  in  a 
couple  of  montiis. 

In  addition  to  this  popular  loan,  the  Treasury  also  sold  3  per 
cent  five  year  Exchequer  bonds  to  the  amount  of  $238,500,000 
lh,s  was  a  financial  device  first  employed  by  Gladstone  during 
the  Lnmean  War  in  1854.  and  used  to  a  considerable  extent  again 
during  the  Boer  War  in  1900  and  1901.  Recourse  to  this  method 
ot  short  term  financing  was  as  yet  modest :  it  was  to  become  much 
greater  ,n  1915  and  1916.     In  addition  to  these  various  loans. 

;^».'u,uuu,uuu  were  also  secured. 

Expenditures,  1914 
The  total  of  ex,,eiiditures  for  the  fiscal  year  ending  March  31 
Ul^.  comprising  four  months  of  peace  and  eight  months  of  war 
was  estimated  by  Mr.  Lloyd  George  in  his  budget  proposals  oi 
N.>vember  I/.  1914.  at  $2,848,085,000,  which  proved  to  be  more 
than  the  actual  exi>enditures.  To  meet  this  the  estimated  receipts 
from  all  sources  were  put  at  $1,056,480,000.  leaving  $1,791  605  - 

s"!^  d^''''''  '"'  '^'■'■'^^^'"g-  O^  this  latter  sum.  almosl  $1.". 
500,000.000  was  secured  from  the  3>^  per  cent  loan,  and  the 
remainaer  was  obtained  by  the  issue  of  Treasur,.  bills  and  from 
other  sources  described.  Of  the  Treasur>-  bills,  there  was  out- 
standing on  March  31.  1915.  the  sum  of  $438,750,000  The  end 
Of  the  hrst  eight  months  of  war  saw  Great  Britain's  debt  in- 
creased by  $2,157,250,000.  The  receipts  and  expenditures  for 
the  year  1914-1...  including  eight  months  of  war.  and  also  for 
the  last  complete  peace  year,  are  shown  in  the  following  tnbie: 
RECEIPTS  A\D  EXPENDITURES,  1913-1915' 


Expenditures     Revenue  Receipts        Loans 


Fiscal  Year 

loirlc   $987,464,840        $991,214,485 

1.133.470,400 
858,793.720 


\UH.  1,  l'914;  to  March -lY.  1915    i/m'.m^ 


$2.lS7256,m 
2,157,250,000 


^j^fmamv  Ano.nu.    See  also  The  Economist  (London),  April  7.  1917.  p. 


great  britain  9 

Taxation,  1914 

In  line  with  a  time  honored  policy,  England  early  resorted  to 
taxation  to  meet  at  least  a  portion  of  the  war  expenditures.  As 
a  result  of  old  age  pensions  and  other  social  legislation  cm  behalf 
of  the  working  classes  tlie  public  exiwnses  of  Kngland  had  l)een 
growing  rapidly  during  the  last  few  years,  and  with  them  her  tax 
revenues.  The  gross  sums  for  the  preceding  few  years  may  be 
set  down  in  a  brief  table : 

Fiscal  Year  Revenue  Expenditure 

'M' $1,514,255,000  $859,980,000 

'"-? 925.4SO.00O  892.725.000 

\l\^\i 944.010.000  943.110,000 

"'*-'^ 991.215.000  987.465.000 

For  the  fiscal  year  1914-15  the  budget  of  May  4,  1914,  had 
proposed  new  taxes  ajiiounting  to  about  $67,595,000  for  the  pur- 
pose of  relieving  local  taxation  and  of  carrying  out  the  program 
of  social  reform.  On  July  31.  on  the  verj-  eve  of  war,  the 
Finance  Act  providing  for  this  program  of  peace  was  passed. 
This  fixed  the  rate  of  the  income  tax  at  Is.  2d.  in  the  pound,  or 
6>li  per  cent,  at  which  point  it  had  stood  for  some  five  years  past. 
It  imposed  a  tax  of  pound  on  tea,  and  revised  and  Increased 

the  death  duties  or  i  ritance  tax.  It  was  estimated  that  these 
changes  would  bring  tne  total  revenue  for  the  fiscal  year  ending 
March  31,  1915,  up  to  about  $1,035,000,000.  In  spite  of  the 
date  which  this  act  bore,  it  was  in  no  way  a  war  measure. 

This  peace  budget  was  left  undisturbed  when  war  broke  out. 
but  it  soon  became  evident  that  additional  revenue  would  have 
to  be  provided  to  meet  the  war  expenditures.  Accordingly,  on 
November  17,  1914,  the  first  war  budget  was  introduced  by  Mr. 
Lloyd  George,  then  Chancellor  of  the  Exchequer.  This  simply 
gnifted  onto  the  existing  budget  increases  in  the  case  of  three 
taxes.  These  consisted  of  a  doubling  of  the  rates  of  the  income 
tax.  the  imposition  of  an  additional  duty  on  tea  of  3d.  per  pound, 
bringing  the  total  duty  on  tea  up  to  8d..  and  an  additional  duty 
of  17s.  3d.  per  barrel  on  beer,  making  a  total  of  25s.  in  all  on  tiiis 
lieverage.     The  taxes  on  beer  and  tea  now  amounted  to  about  80 


10 


niRKlT  AND  INDIRECT  COSTS  OP  THE  WAR 


IHfr  cent  ut  their  original  cost.     The  double  income  tax  was  levied 
for  nnly  one-third  of  the  year,  namely,  from  December  1.  1914, 
to  March  M.  1«M5.     These  new  taxes  were  to  run  only  for  the 
remainder  of  the  fiscal  year  to  March  31.   1915.  when  a  new 
Inidget  would  make  permanent  provision  for  the  burdens  of  war. 
_  It  was  estimated  that  the  additional  tea  duty  would  yield  $4.- 
"50.000.     The  additional  beer  duties  were  exi)ectcd  to  bring  in 
$12.5(X).0OO.  and  ihc  increase  in  the  income  and  supertax  $62.- 
50O.(XX).     Hut  from  these  increases  should  be  subtracted  a  reduc- 
tion of  license  duties  which  was  made  to  compensate  for  the  tax 
on  Ijeer.  and  which  lessened  the  revenues  from  this  source  by 
$2,250,000.     Moreover,  a  revised  statement  of  the  Treasury  on 
IXcember  21.  1914.  modifying  the  above  estimates,  reduced  the 
revenue  expected  from  the  income  tax  by  $8,200,000  and  that 
from  the  beer  duty  by  another  $2,250,000.    It  is  evident  that  as 
yet  the  problem  of  war  taxation  had  not  Iwen  seriously  attacked, 
and  that  these  taxes  could  be  considered  only  as  a  makeshift. 

KXPENDITURES,   1915-16 

The  second  war  bjidget  was  that  of  May  4,  1915.  It  was  by 
this  time  clear  that  the  war  was  not  to  end  as  speedily  as  had 
l)een  at  first  optimistically  anticipated.  War  costs  were  mount- 
ing rapidly,  and  Great  Britain's  share  of  the  burden  was  growing 
appreciably.  The  deficit  for  the  fiscal  year  just  ended,  which 
had  to  be  met  by  borrowing,  was  $1,668,900,000  or  somewhat 
less  than  had  been  anticipated.  This  was  due  to  the  fact  that  the 
increases  in  taxation  introduced  by  Lloyd  George  were  yielding 
rather  more  than  had  been  estimated,  and  the  losses  in  the  cus- 
toms and  excise  duties  had  not  been  so  great  as  was  anticipated. 
<>v\  ing  to  the  greatly  increased  imports  of  war  material  and  other 
commodities  and  the  increased  consumption  of  spirits. 

The  total  expenditures  for  the  year  in  the  budget  presented  by 
Lloyd  George  were  estimated  at  $5,663,270,000.  A  saving  of 
$18,900.(K)0  was  estimated  as  a  result  of  the  proposed  suspension 
of  the  new  sinking  fund,  but  against  this  must  be  set  an  addition 
of  $74,880,0(10  tor  interest  and  expenses  of  additional  war  debts. 


GREAT  BRITAIN  H 

The  revenue  receipts,  on  the  other  hand,  were  calculated  at  $l,- 
351.660,000.  leaving  the  balance  of  $4,311,610,000  to  be  met  by 
loans  -an  amount  almost  equal  to  the  total  British  debt  at 
the  end  of  the  Napoleonic  War  ($4,380,000,000).  The  only 
chanties  in  taxation  proposed  in  the  budget  were  slight  increases 
of  the  wine  and  beer  duties  which  it  was  estimated  would  bring 
in  $15,500,000.  The  additions  made  in  November,  1914,  to  the 
tea  duties  and  the  income  tax  were  continued.  Receipts  from 
taxes  and  nontax  revenues  together,  according  to  this  program, 
made  up  about  one  quarter  of  the  total  expenditures,  the  other 
three-  quarters  being  obuined  from  loans.  In  lieu  of  a  vigorous 
tax  policy,  Mr.  Lloyd  George  was  content  to  let  the  slight  addi- 
tions of  the  previous  Xovembtr  remain  and  to  exhort  the  people 
as  to  the  importance  of  thrift.  The  financial  results  of  tlie  oper- 
ations of  the  past  year  and  the  estimates  for  the  coming  one  as- 
given  in  the  Chancellor's  financial  statement  may  be  briefly  stated 
as  follows : 

Deficit 

Fiscal  Year                          Receipts             Expenditures  to  be  Met  by  Loans 

1913-14 $99U15,000           $987,465,000  t  $3,750,000 

1914-15 1.133,470,000          2.802,368,000  1.668.CO0.00O 

1915-16* U51,660,000          5,663,020,000  4,311,610,000 

*  Estimate  on  basis  of  12  months  of  war. 
t  Surplus. 

Before  the  year  was  ovfr,  these  estimates  had  to  be  revised  in 
an  upward  direction  and  still  larger  sums  asked  for  even  than 
the  enormous  amounts  here  set  down.  The  votes  of  credit  asked 
by  the  government  during  the  fiscal  year  1915-16  were  as  fol- 
lows: 

VOTES  OF  CREDIT,  1915-16 
Date  Amount 

1915  February  28 $U5O.0OO.O0O 

July  10  1.250.000.000 

July  19  750,000,000 

September  14   1,250,000,000 

November  9  2,000.000,000 

1916  February  17 600,000.000 

•  $7,100,000,000 

♦  ExdudinR  ?SOO,000,000  repaid  to  Bank  of  England  expended  in  previous 
year. 


'-  DIRECT  AXr>  INDIRFXT  COSTS  OK  THE  WAR 

Loans,  1915-16 

In  order  to  rjiise  these  sums  the  British  Government  first  made 
use  of  short  teim  securities;  then,  in  the  second  week  of  April, 
1915.  it  began  with  a  large  issue  of  Treasury  bills  which  it  de- 
cided to  sell,  not  at  stated  intenals  in  fixed  amounts  as  during 
the  previous  year,  but  in  the  open  market  by  issue  at  any  time  at 
hxed  rates  of  discount.  '  This  policy  was  successful  in  procur- 
ing considerable  sums  for  the  Treasury  at  a  comparativelv  low 
rate  of  interest.  During  April  and  June  the  rate  of  interest  was 
-'•H  per  cent  for  three  months  bills,  3%  per  cent  for  six  months, 
and  3.14  per  cent  for  nine  months  and  one  year  bills.  By  June 
-'1.  the  amount  of  Treasury  bills  issued  was  $1,175,000,000. 

In  spite  of  its  success,  however,  the  increase  of  the  floating 
debt  carried  w  ith  it  certain  dangers,  as  the  bills  might  mature 
just  as  the  Treasury  was  in  need  of  additional  funds.     More- 
over, with  their  enlarged  emission,  the  rate  of  interest  began  to 
go  up.  until  there  was  little  to  gain  from  a  further  use  of  these 
bills  instead  of  a  permanent  loan.     Accordinglv,  on  June  21. 
1915,  Mr.  Reginald  McKenna,  the  new  Chancellor  of  the  Excheq- 
u'-r.  announced  the  issue  of  a  second  permanent  loan.     This  dif- 
icred  in  .evenil  important  respects  from  the  3j^  per  cent  loan  of 
the  previous  November.     The  rate  of  interest  was  raised  to  414 
per  cent,  but  it  was  to  be  issued  at  par  and  the  income  from  this 
source  was  subject  to  the  income  tax  and  sui)ertax.     As  the  3>; 
per  cent  ten  }car  bonds  had  been  issued  at  95  and  were  tax  ex- 
empt, there  was  practically  no  increase  in  the  real  rate  of  interest, 
especially  if  the  depreciation  in  the  value  of  monev  I)e  taken  into 
account.     Current  criticism  directed  against  this  loan  was  to  the 
effect  that  the  rate  was  unduly  high.     But  this  was  excused  on 
the  ground  that  the  high  rate  was  expected  to  attract  investors 
troni  neutral  countries  and  that  it  was  desired  to  make  the  loan 
a  success.  =     The  Iwnds  were  redeemable  in  ten  vears  and  pav- 
able  >n  thirty  years.     This  was  the  principle  adopted  by  Secre- 

Co^Zt  yune'21.'l9^""'"  "^^""""^  ""'  "^  ^xchenuer,  before  House  of 
-Spcctntor,  UA-.m-   Hankers  Maga::mc   fLondon).   100:119. 


GREAT  BRITAIN 


13 


tan  Chase  in  the  issue  of  the  so-called  "five-twenties"  and  "ten- 
forties"  during  the  American  Civil  War.  It  brought  the  issue 
under  the  control  of  the  Treasury  in  a  short  time  if  it  wished  to 
avail  itself  of  that  privilege;  but,  on  the  other  hand,  this  very 
possibility  undoubtedly  had  the  effect  of  raising  the  rate  of  in- 
terest and  of  increasing  the  cost  to  the  Treasury  if  the  debt  were 
not  paid  off.  The  element  of  flexibility  was,  however,  an  ad- 
vantage which  the  Treasury  presumably  thought  worth  the  higher 
price. 

The  loan  was  for  an  unlimited  amount.  It  could  be  paid  for 
in  instalments  spread  over  four  months,  and,  finally,  it  was  made 
available  to  small  subscribers  by  the  issue  of  small  denominations 
as  low  as  $25.  At  the  same  time  there  was  placed  on  sale  at  all 
the  post  offices  and  trade  union  headquarters  war  loan  vouchers 
for  sums  as  low  as  $1.25,  which  could  be  applied  on  the  purchase 
of  the  $25  and  $125  denomination  bonds.  Payment  could  be 
made  for  these  bonds  in  3>2  per  cent  consols,  ly^  and  2^  per 
cent  annuities  at  a  value  fixed  by  the  government.  In  the  case 
of  consols  this  exchange  rate  was  placed  at  66?^,  which  was 
slightly  more  than  the  existing  market  rate  but  considerably  less 
than  the  prewar  price.  Provision  was  also  made  that  in  case 
future  loans  were  issued  at  a  higher  rate  of  interest,  holders  of 
the  4>4s  could  convert  them  into  the  new  loan.  On  July  13, 
1915,  Mr.  McKenna  announced  the  first  result  of  the  new  war 
loan : 


At  Bank  of  England. 
At  post  offices  


Subscribers 
550.000 
47.000 


Amount 
of  Subscriptions 
32,850.000.000 
75,000,000 


597.000 


i«2.925.000,000 


The  final  amount  received  by  the  Treasury  for  this  loan  was 
$2,961,725,000,  but  about  half  of  it  was  made  up  of  existing  debt 
which  was  now  converted  into  this  higher  priced  stock.  The 
amoimts  offered  for  conversion  were  as  follows  :* 


^Economist  (London),  November  20,  1915,  p.  853. 


'"*  DIRIX  r  AXD  IXOIKEIT  COSTS  OF  TIIK  WAR 

V,/""''*  ■  ■  ■ ; ■  • 11,020.000.000 

i'A  per  cent  annunities ^      w  cmnftn 

2M  per  cent  annuities s'nnn'^ 

3'^  per  cent  war  loan ::.:::::::::::::;::::::::::::  675;ooo;r 

$1,737,500,000 

Ihe  pnicecds  of  tin,  loan  siifticed  to  meet  the  exiK-ndittires  of 
the  next  three  or  four  months,  hut  hy  the  autumn  it  was  clear 
that  a  more  vigorous  use  of  taxation  would  have  to  be  made. 
The  war  costs  were  mounting  up  l)eyond  all  expectations,  and 
there  was  no  prospect  of  a  speedy  termination  of  the  struggle. 
Tile  progressive  increase  in  war  expenditures  is  shown  in  the 
following  table : 

WAR  KXi'EXDlTURES  BV  QUARTICKS.  1915-16 
,''"7'  ,  Days        Per  Quarter  Per  Day 

jX"i-iS;e.£r  S^9.5: ::::::::     S    S'S    ^]a?S 
"t:-  /-m:t'\T  f<Ji  J'^' f.     S^Z     IIS'S 

Jn  .-Hr)   l-March  31.  1916 91  2,297.205.000  25.2     ,000 

Total  and  average 366         $7,796,790,000         $21,302,705 

To  meet  these  growing  expenditures,  the  Chancellor  of  the 
l-.xchc(nicr  was  compelled  to  grasp  at  every  credit  device  open  t<. 
Inm  which  gave  promise  of  vielding  returns.     In  a  speech  at 
(iuildhall  on  ji;ne  29.  1915.  Mr.  .\  -juith  '  mentioned  four  possi- 
bilities for  financing  the  war.  namely.   (1  )   the  sale  of  invest- 
ments, (2)  ix.rrowing  abroad,  (3)  imment  out  of  gold  resene, 
(4)    diminish    exi)enditnres    and    increase    savings.     The   first 
method  was  held  to  lie  unwise  l)ecause  it  would  impoverish  the 
country  and  impracticable  l)ecause  of  the  inabilitv  of  foreigners  to 
l>uy  the  I'.ritish  investments.     The  second  method,  while  feasible, 
should  not  lie  indiilged  in  too  freely  for  fear  of  making  Great 
I'.ritain  a  debtor  nation.     The  third  method  was  dismissed  as 
impracticable,  but  in  the  fourth  his  strongest  hope  was  placed. 
These  views  are  mentioned  here  not  for  any  merit  which  thcv 
l>ossess  as  financial  expedient?,  but  as  evidence  of  the  views  enter- 
tained in  high  quarters  lx.th  as  to  the  cost  and  duration  of  war, 

'  Hankers  Mayazinc  (London),  July,  1915. 


GREAT  BRITAIN 


15 


and  the  best  means  of  financing  it.  Within  six  months  both  of 
the  first  two  methods  then  rejected  as  impracticable  were  being 
pursued.  Great  as  was  the  financial  strength  shown  by  Great 
Britain,  it  was  quite  beyond  her  power  to  pay  for  the  war  out  of 
current  income,  and  she  was  shortly  compelled  to  mortgage  her 
capital  in  order  to  meet  the  expenditures.  To  the  credit  of  Great 
Britain  it  should  be  said,  however,  that  neither  then  nor  subse- 
quently was  any  su^^estion  made  that  resort  should  be  had  to 
paper  money. 

In  addition  to  the  ten-thirty  year  loan  of  June  just  descril^ed, 
recourse  was  had  also  to  short  term  Exchequer  bonds.  Some 
$238,500,000  of  these  had  been  issued  the  previous  year  at  3  per 
cent  to  run  five  years,  but  now  they  were  used  more  freely.  The 
new  Exchequer  bonds,  which  like  the  previous  issue  fell  due  in 
1920.  bore  a  5  per  cent  interest  rate.  By  the  end  of  the  fiscal 
year  (March  31,  1916),  there  were  $768,445,000  of  these  out- 
standing. War  savings  certificates  payable  in  five  years  were 
also  sold  to  the  total  amount  of  $6,250,000.  In  addition  to  these 
domestic  supplies  of  capital,  Great  Britain  looked  abroad  for  the 
first  time  for  assistance.  A  joint  French  and  English  mission 
was  s*""!  to  the  United  States  to  negotiate  a  loan  for  these  gov- 
ernments. An  effort  was  made  to  float  a  loan  of  $1,000,000,000, 
but  the  American  bankers  were  unwilling  to  underwrite  so  large 
a  proposition,  and  half  this  amount  was  finally  agreed  upon. 
Even  this  amount  caused  considerable  misgivings  in  the  New 
York  money  market  as  this  was  the  largest  single  loan  to  be 
floated  in  the  United  States  since  the  days  of  the  Civil  War. 
Some  little  trouble,  too,  was  caused  by  the  opposition  of  pro- 
German  bankers  and  sympathizers  who  wished  to  insert  a  pro- 
vision that  no  portion  of  the  loan  should  be  spent  for  munitions, 
or  go  to  Russia.  As  finally  arranged,  the  Anglo-French  loan 
was  for  $500,000,000  and  consisted  of  5  per  cent  bonds  due  in 
five  years,  when  they  were  either  payable  in  cash  or  convertible 
into  long  term  bonds  of  the  two  governments.  The  issue  price 
was  98,  making  the  real  yield  nearly  5.5  per  cent.  The  distri- 
bution of  these  bonds  was  eflfected  in  part  by  their  allocation  to 


]() 


DIRECT  AND  INDIRECT  COSTS  OF  THE  WAR 


various  munition  firms  and  other  businesses  furnishing  supplies 
to  the  French  and  Enghsh  governments.  Some  of  the  bonds 
were  later  distributed  hv  these  corporations  in  the  form  of 
dividends. 

From  all  these  sources  a  total  of  some  $6,779,297,280  was 
secured,  from  which  must  be  subtracted  the  repaymeiit  of  the 
advances  of  the  Bank  of  England.  The  net  borrowings  are 
«ho\vn  in  the  following  table : 

BORROWIXGS  DURING  1915-16 

Treasury  bills,  net $24A4nonnnn 

3'.  ptfr  cent  loan,  192S-1928 ITs'ow'odn 

3  per  cent  E.-heyuer  bonds,  1920 1  21l'^S 

4''j  per  cent  war  loan 296l'725"900 

.■-  per  cent  Exchequer  bonds,  1920 7fAiJ.'{^ 

United  States  loan   9U}n\ui 

Other  debt  [i:::..:. Sliso'oOO 

•^"'-  -<i-"«s .■;:::;::::.■::   SsSS 

$6  7792^.2^ 
Less  :  Repayment  to  Bank  of  England 802.'l38,l  15 

Net  debt  created  by  borrowing ..$5,977,159165 

Taxation,  1915-16 

The  proportion  of  the  total  government  e.xpenditure  defrayed  by 
loans  during  the  second  year  (.April  1,  1915,  to  March  31.  1916) 
was  84  jjer  cent.  Such  an  extreme  loan  policy  was  not  in  accord 
with  British  tradition,  and  in  the  next  budget  proposal  of  Mr. 
McKenna  on  September  21,  1915.  a  vigorous  efifort  was  made 
to  open  up  new  sources  of  tax  revenue.  This  was  the  first  real 
application  of  war  taxation  which  the  country  had  experienced. 
The  war  costs  were  still  mounting  and  the  estimate  of  the  year's 
needs,  which  in  April  had  been  put  at  $5,665,000,000.  was  now 
raised  to  $7,950,000,000.  Of  this  amount  some  $395,000,000 
were  needed  for  the  consolidated  fund  service,  which  included  the 
national  debt  charges;  $455,000,000  were  to  go  to  the  ordinary 
supply  service:  which  left  a  balance  of  $7,100,000,000  for  war 
expenditure.  These  were  staggering  sums  and  represented  an 
increase  of  nearly  $2,400,000,000  over  the  original  estimates 


GREAT  BRITAIN  17 

Daily  expenditures   were  now  running  at  afxjut  $25,000,UOO. 
How  to  raise  this  sum  was  the  problem  which  was  presented  to 
Mr.  McKenna,  a  problem  which  he  met  boldly  and  vigorously. 
The  budget  which  he  presented  aroused  even  the  conservative 
London  Economist,  not  ordinarily  given  to  superlative,  to  draw 
heavily  upon  its  stock  of  adjectives:     "It  was  a  plain,  unvar- 
nished statement  of  unparailelcd  revenues,  an  inconceivable  ex- 
penditure, and  an  unimaginable  deficit,  followed  by  a  list  of  fresh 
taxation  whicb  imposed  an  unprecedented  burden  on  the  country." 
The  most  important  sources  of  revenue  under  this  new  scheme 
were  the  inccxiie  tax  and  supertax.    The  normal  income  tax  rate 
was  raised  to  3s.  6d.  in  the  iwund.  or  17..S  per  cent.  But  more  im- 
portant thaji  the  increase  in  the  rate  was  the  reduction  in  the 
minimum  exemption  from  $900  to  $650,  so  that  a  great  mass  of 
taxpayers  who  had  previously  escaped  direct  taxation  were  now 
drawn  into  the  tax  net.     \i  the  same  time  a  distinction  was  made 
between  earned  and  unearned  incomes,  the  latter  being  taxed 
somewhat  more  heavily.     The  supertax  ranged  from  lOd.  to  3s. 
6d.,  being  graduated  on  incomes  from  $12,500  to  S.SO,000.   From 
these  two  additional  taxes  a  revenue  of  $67,120,000  vvas  esti- 
mated, which,  together  with  the  sums  already  collected,  would 
give  total  taxes  from  this  source  of  $582,120,000  for    '.e  year 
1915-16.     The  real  war  tax  of  the  program  was  the  excess  war 
profits  tax  which  was  introduced  for  the  first  time.     This  tax 
amounted  to  50  per  cent  on  incomes  for  the  period  from  August 
1,  1914,  to  July  1,  1915,  on  any  excess  over  the  defined  prewar 
standard  of  profits  with  a  further  abatement  of  $1,000.     As  a 
basis  for  prewar  profits,  the  taxpayer  was  permitted  to  take  the 
average  of  any  two  of  the  three  prewar  years,  but  if  these  years 
could  be  shown  to  have  been  years  of  depression,  he  vvas  per- 
mitted to  take  any  four  of  the  last  six  years.     The  estimated 
receipts  were  placed  at  $150,000,000  for  a  full  year,  and  at  $30.- 
000,000  to  March  31,  1916,  but  defects  in  the  tax  and  its  admin- 
istration made  the  yield  for  the  latter  period  but  $700,000. 

Although  the  income  tax  now  reached  -own  to  the  man  with 
an  income  of  $655,  it  was  felt  that  still  smaller  incomes  must  be 


''^  DIRKCT  AM)  I.VDIKKCT  COSTS  OF  THE  WAR 

iiia.lc  to  shoulder  their  share  of  the  war  burden,  but  as  it  was 
n.anitestly  impossible  to  reach  them  directly  on  account  of  the 
excessive  cost  of  collectinj,'  an  income  tax  from  persons  of  very 
small  means,  it  was  proposed  to  get  at  tlieni  by  raising  the  cus- 
toms and  excise  duties  on  a  numl)er  of  articles  which  were  of 
jjcneral  consumption  among  the  masses  of  the  people.     These 
\vcre  tea.  cocoa,  cofifee.  chicory,  dried  fruits,  tobacco,  on  all  of 
winch  the  duties  were  raised  50  per  cent ;  sugar,  the  duty  on  which 
«as  jumped  from  Is.  lOd.  to  9s.  4d..  or  2\A  cents  a  pound.     On 
mnt,.r  spirits  and  patent  medicines  the  duties  were  doubled;  and 
upon  cmema  films,  watches,  musical  instnmients,  imi>orted  motor 
cars  and  motor  oicycles.  hitherto  untaxed,  an  import  dutv  of  2>^V^ 
per  cent  was  impt)scd.     Finally,  the  postal,  telegraph  and  tele- 
phone rates  were  raised.     From  all  these  sources  it  was  hoped  to 
secure  additional  revenues  of  $57,500,000  f„r  the  balance  of  the 
year,  and  $164,520,000  for  a  full  year. 

The  proportion  of  direct  income  and  property  taxes  as  con- 
trasted with  indirect  consumption  taxes  remained  about  in  the 
ratio  of  60  to  40  under  these  new  impositions,  which  was  about 
the  relation  established  in  the  prewar  budget  of  Mr.  Llovd 
George. 

The  receipts  from  taxation  for  the  fiscal  vear  1915-16  proved 
to  be  $155,000,000  more  than  Mr.  McKenna  had  estimated  in 
Septemlier,  while  the  total  expenditures  were  not  quite  so  large. 
The  year's  operations  were  as  follows : 

S:^;'"'-"    $7,795,791,883 

r  oans        1.683.834.120 

""'    5.977,159,165 

At  the  end  of  the  fiscal  year  1915-16  the  debt  had  teen  in- 
creased $5,158,187,715  over  that  of  a  twelvemonth  before  and 
n..w  amounted  to  $10,987,196,225.  The  official  statement  for 
thi>  date  was  as  follows  : 


GREAT  BRITAIN  J9 

DEBT,  MARCH  31,  1916 

'^"""            p  Amount 

T  u„   ^'■^**''   $3,538,270,000 

Treasury  bills     i---:- $2,756,639,000 

3  per  cent  Exchequer  bonds,  1920 250000000 

5  per  cent  Exchequer  bonds,  1920 768  445  000 

3J4  per  cent  war  loan.                  .■.■;;.■.":;.■.■.■;;  1.7SO;000;000 

4</j  per  cent  war  loan,  1925-1945 2  961  725  90u 

Anglo-French  loan  in  United  States 257 800000 

Miscellaneous  borrowings    99*480000 

T ...  J  K*      J         J  58.844.080,900 

Less  debt  redeemed 130,555.950 

War  debt  .. .  .$8,713,524,950 

Total,  war  and  prewar *  $12,251,794,950 

♦  Less  consols  converted  into  454  per  cent  war  loan  on  basis  of  £66  13s  4d 
per  100  pounds. 

Expenditures.  1916-17 

While  this  wis  a  satisfactory  showing  from  one  standpoint, 
the  percentage  wliich  loans  made  of  the  total  receipts,  78.5  per 
cent,  was  still  very  high.  Taxes  alone  contributed  only  18.6 
per  cent  of  the  expenditures.  On  the  other  hand,  war  expenses 
were  still  mounting.  For  three  months,  from  January  to  March 
31,  1916,  the  war  expenditures  had  been  at  the  rate  of  $25,- 
230,000  daily,  and  during  the  spring  and  summer  they  would 
undoubtedly  be  higher.  Moreover,  the  interest  and  sinking  fund 
charges  for  the  debt  alone  now  amounted  to  $335,000,000  for 
the  year.  The  steady  growth  of  expenditure  is  indicated  in  the 
following  table: 


WAR  EXPENDITURES   BY  QUARTERS,   1916-17 

''*'"°d  Days  Per  Quarter             Per  Day 

April  1-June  30,  1916 .        91  $2,222,800,000  $24,425,000 

July   1-September  30,   1916 92  2,301,210,000           25,015,000 

October  1-December  31,  1916 92  3,305,585,000           35,930,000 

January  1-March  31,  1917 90  3,160,970,000           35,620,000 

Total  and  average 365       $10,990,565,000         $30,111,137 

When  Mr.  McKenna  brought  in  his  budget  of  April  4,  1916, 
making  provision  for  the  fiscal  year  1916-17,  he  therefore  raised 
his  estimates  all  around.    Expenditures  were  estimated  at  $9,1 25.- 


20 


DIRECT  AND  INDIRECT  COSTS  OF  THE  WAR 


(.»0().0(X),    and    revenues    to    bring    in    $2,867,000,000,    leaving 
86.258.000,000  to  be  raised  by  loans. 

Taxation-.  iyif>-17 

The  revenues  froni  taxation  which  were  to  be  raised  by  this 
budget  amounted  to  82,511,375,000.  which  was  an  increase  of 
$830,000,000  over  the  |)revious  year.  To  secure  this  truly 
staggering  sum,  the  rates  on  the  income  tax  were  first  of  all 
raised.  The  lowest  rate  on  earned  incomes  was  2s.  3d.  for  those 
between  $655  and  $1,500,  and  3s.  for  unearned  incomes  of  the 
same  amount.  For  both  classes  of  income  these  rates  progressed 
imtil  the\  reached  5s.  for  incomes  over  $12,500.  The  supertax, 
which  applied  to  incomes  over  $12,500,  was  left  unchanged. 
From  these  two  taxes  it  was  estimated  that  $725,000,000 
might  be  obtained.  As  a  matter  of  fact,  the  end  of  the  fiscal 
\ear  showed  the  yield  to  l)e  some  $50,000,000  higher  than  the 
estimates. 

The  rate  of  the  excess  profits  tax.  whose  administr?' 'on  had 
lieen  approved  and  which  had  met  with  popular  approval,  was 
now  raised  to  60  per  cent.  The  principle  of  the  English  excess 
profits  tax  was  designed  to  secure  for  the  state  a  part— under 
the  new  law  the  larger  part— of  those  profits  which  were  specifi- 
cally due  to  the  war.  The  returns  from  this  tax  were  esti- 
mated at  $430,000,000,  which  estimate,  because  of  the  new- 
ness of  the  tax,  was  merely  a  guess.  So  great  was  the  war 
prosi)erity,  however,  that  the  actual  yield  from  this  tax  was 
$699,600,000.  The  various  additions  to  these  taxes  which  had 
lieen  made  since  the  beginning  of  the  war  are  shown  in  the 
following  table : ' 

xf'  *^'T«f/  ^^l^ii  "^^'"''  finance."  in  Journal  of  the  Rn\al  Statistical  Society, 
-May.  1916.  p.  282.  ' 


ORF.AT  BRITAIN 


!l 


WAR  TAXES-INCOME  TAX.  SUPERTAX  AND  EXCESS  PROFITS 

TAX 


Prior  to  War 

November, 

September,            April, 

1914 

1915                   1916 

Income  tax* 

Is.  3d.  per  I. 

2s.  6d. 

3s.  6d.              1 5s. 

Supertax 

6d.  per  I  over 

lOd.  to  2s.  8d. 

lOd.  to  3s. 

is.OOO. 

ifraduated 

6d.  gradu- 

from 

ated  from 

i2,S00to 

i2.S0O 

£8.000. 

to  ilO,000. 

Excess  profits 

tax 

Nil. 

Nil. 

50  per  cent    60  per  cent. 

•The  basis  of  taxation  under  Schedule  B  (charged  in  respect  of  the  occu- 
pation of  lands)  from  one-third  to  the  full  amount  of  the  annual  value. 

t  Graduations  also  changed.  Rate  2s.  3d.  in  the  pound  on  earned  incomes 
not  exceeding  £500,  2s.  6d.  from  iSOO  to  il,000.  3s.  from  il.OOO  to  £1.500. 
3s.  8d.  from  £1,500  to  £2.000,  4s.  4d.  from  £2,000  to  £2,500,  5s.  over  £2,500. 
Rate  3s.  in  the  pound  on  unearned  incomes  not  exceeding  £300,  3s.  6d.  from 
£300  to  £500,  4s.  from  £500  to  £l,tl00,  45.  6d.  from  £1,000  to  £2,000,  Ss.  over 
£2,000. 


Attention  was  then  turned  to  the  aistoms  and  e.xcise  duties. 
The  duty  on  cocoa  was  quadrupled,  that  on  tea,  coffee,  and 
chicory  was  doubled;  that  on  sugar  was  raised  50  per  cent. 
New  taxes  were  imposed  on  table  waters,  cider,  and  similar 
beverages,  and  on  matches,  while  license  fees  for  automobiles 
and  motor  cycles  were  doubled.  Amusements  of  all  sorts  were 
also  to  be  taxed,  including  theaters,  moving  pictures,  horseraces, 
and  football  matches. '  From  all  these  sources  it  was  hoped  to 
raise  $308,900,000. 

Huge  as  had  been  the  estimates,  the  actual  receipts  for  the 
fiscal  year  ending  March  31,  1917,  exceeded  them  by  over  $350.- 
(XX),0O0,  almost  every  source  yielding  be>ond  the  original  esti-  ' 
mate.  Considerably  over  half  of  the  $2,867,000,000  was  ob- 
tained from  the  income  and  excess  profits  taxes.  Next  to  these 
in  lucrativeness  ranked  the  customs,  excise,  aid  estate  duties. 
English  industry  had  now  adjusted  itself  to  war  conditions  and 
was  experiencing  an  era  of  expansion  which  swelled  the  tax  re- 
ceipts beyond  all  expectation.  The  customs  and  excise  duties 
were  a'-o  increased  largely  as  a  result  of  the  increased  demand 

>  A  proposed  tax  on  railway  travel  estimated  to  bring  in  some  $15,000,000 
was  abandoned  because  of  popular  dissatisfaction.    Annalist,  May  8,  1916. 


--  DIKKt  T  AND  INOIKEfT  COSTS  OF  THE  WAR 

for  seiiii-luxiiries  by  the   wage  earners  whose  unprecedentedly 
lii«h  wages  were  siH;nt.  rather  than  saved. 

iiven  with  this  .sttipeiidoiis  increase  in  the  burden  of  taxa- 
tion which  the  i:nglisli  people  accepted  without  murmuring,  .'t 
was  necessary  to  rely  mainly  upon  Umm  to  raise  the  $30,000000 
uh.ch  the  war  uas  n-.w  daily  costing.  The  actual  receipts  and 
expenditures  for  the  year  were  as  follows: 

Expenditures.  \<il6-l7   «inoo(»  c/:j  ten 

Revenue   receipts,    1916-17 '^'a^'^oT^ 

Loans    ..  *,oo/,U/,yiO 

8.149,508,125 

Loans,  1916-17 

The  tloating  deLt  was  assuming  unmanageable  proix)rtions, 
Ireasury  bdl.s  outstanding  having  increased  from  $1,977,825  000 
on  December  31,  1915.  to  $2,756,630,000  on  March  31    1916 
and  t.,  .S3.J43,3a).0OO  on  May  16.  1916,  and  to  $5,000,000  000 
in  September  of  1916. 

IvNchequer  bonds  running  for  three  and  five  years  were  used 
to  hll  m  the  gap  between  Treasury  bills  and  long  term  bonds. 
Onginally  these  were  issued  for  five  years  at  5  per  cent,  but 
after  January  1.  1916,  the  three  and  five  year  bonds  were  issued 
m  their  stead,  while  the  interest  rate  was  raised  to  6  per  cent 
HI  Xox-eniber.  1916.  as  a  result  of  the  large  issues  of  Treasury 
bills  u  hich  glutted  the  market.    Ways  and  Means  advances  were 
practically  loans  from  Bank  of  England.    Altogether,  about  one- 
half  of  the  total  borrowings  of  this  period  took  the  form  of 
lemi,orary  or  short  term  obligations.     As  the  war  progressed 
However,  there  was  a  tendency  to  make  larger  use  of  long  term 
t«nds.     The  stages  in  the  working  out  of  the  British  financial 
policy  are  clearly  discernible;  from  short  term  Treasury  bills 
to    -.xchequer  bonds  running  only  a  few  years  was  a  short  step, 
to  be  followed  inevitably  as  the  war  dragged  on  and  the  debt 
piled  up,  by  resort  to  long  term  funded  debt 

An  important  part  of  the  loan  program  of  this  period  was 
the  problem  of  securing  American  credits.  British  purchases  of 
•munitions,  foodstuffs  and  other  war  materials  in  the  United 


n  \ 


UREAT  BRITAIN 


2i 


States  had  been  cnoniious.  and  an  adverse  balance  had  been 
created  which  was  disastrously  af7ecting  exchange  rates.     As 
early  as  November  24.  1915,  Mr.  McKenna,  Chancellor  of  the 
F':xche(|uer.  stated  to  the  House  of  Commons  that  the  govern- 
ment had  bi'gun  negotiations  with  large  holders  of  American  se- 
curities (nr  the  purp«.se  of  obtaining  control  of  these  holdings,  in 
order  to  use  them  as  collateral  for  additional  credits.     As  orig- 
inally pro[>osed.  the  plan  contemplated  the  purchase  or  the  bor- 
rowing of  American  securities.    The  government  might  buy  such 
securities  outright  at  the  New  York  market  quotation  and  pay 
for  them  in  5  per  cent  Exchequer  bonds,  or  it  might  borrow  the 
securities  paying  to  the  owner  the  interest  or  dividends  received 
and  a  bonus  of  one-half  of  one  per  cent  on  the  par  value.     In 
case  the  government  found  it  necessary  to  do  so,  it  was  to  have 
the  option  of  selling  the  borrowed  securities,  in  which  case  it 
agreed  to  add  2i<j  per  cent  to  the  average  of  the  high  and  low 
New  York  quotation  on  the  day  of  sale.     This  plan  was  modi- 
fied from  time  to  time  but  the  essential  features  were  not  mate- 
rially altered. 

On  January  7.  1916,  the  British  Goveinment  made  public  the 
initial  list  of  securities  which  the  Treasury  was  prepared  to  bor- 
row or  buy,  and  the  prices  it  would  pay  therefor.  This  list  con- 
tained fifty-four  securities.  Subsequent  lists  increased  the  num- 
ber of  securities  which  the  government  agreed  to  purchase,  the 
fourth  one  published  May  6,  1917,  bringing  the  number  up 
to  nine  hundred.  As  the  plan  did  not  at  first  bring  in  as  many 
securities  as  were  hoped  for,  a  penal  tax  of  10  per  cent  was 
placed  on  the  income  from  listed  securities  not  turned  in.  This 
tax,  together  with  modifications  in  the  original  plan  which  made 
compliance  financially  more  attractive  to  holders,  had  the  de- 
sired effect.  It  was  estimated  in  Januar>-,  1917,  that  not  less 
than  $2,000,000,000  out  of  a  total  of  $4,500,000,000  American 
securities  owned  in  Great  Britain  had  been  deposited  by  owners 
with  the  government.  The  entrance  of  the  United  States  into  the 
war  in  April,  1917,  so  altered  the  situation  with  regard  to  tlie 
raising  of  loans  in  the  United  States  and  the  control  of  ex- 


24 


nrRr(  T  and  indirki  t  costs  ok  the  war 


chanRc  tliat  the  Mritish   Ireasiin  was  able  practically  to  discon- 
tinue the  scheme  l>\   the  tollowing  September. 

With  the  aid  »(  the  securities  thus  mobilized,  the  govein- 
nient  was  able  to  Hoat  two  large  loans  in  United  States.    The 
first  was  for  $.'.^0,000,000  and  was  s«ured  in  August.   1916, 
from  a  syndicate  headed  by  J.  P.  Morgan  &  Comi«ny.     Two 
year  5  per  cent  collateral  gold  notes  of  the  British  Government 
secured  by  collateral  aggregating  in  value  some  $300,000,000 
were  taken  over  by  the  syndicate  at  98  and  sold  to  the  public  •* 
•W.  at  which  price  they  yielded  about  5.5  per  cent.    The  loan  was 
(|uickly  subscribed  and  proved  a  decided  success.     In  October 
another  loan  of  the  same  sort  was  brought  out  by  the  same  syn- 
dicatc.     This   «as  for  $300,000,000.  half  consisting  of  three 
year  gold  notes,  and  half  of  five  year  gold  notes,  bearing  5  per 
cent  interest.    These  were  direct  obligations  of  the  British  Gov-' 
emment  and  \\«;re  further  secured  by  collateral  of  stocks,  bonds, 
and  securities  of  various  kinds  amounting  to  a  face  value  of 
$360.(XX),00().    The  three  year  issue  was  offered  at  99.25,  yield- 
ing 5.75  per  cent,  and  the  five  year  issue  at  98.5.  yielding  5.85 
per  cent.    This  loan  too  was  a  complete  success.    It  is  doubtful 
whether  in  the  existing  slate  of  the  market  and  of  the  public 
mind  these  loans  could  have  been  doated.  at  least  upon  as  reason- 
able terms,  unless  tlie>-  had  been  secured  by  collateral. 

Large  as  were  the  sums  borrowed  during  the  year  1916.  they 
were  insufiicient  to  carry  the  r  ernment  through  to  the  end  of 
the  fiscal  year  and  meet  the  war  costs,  which  by  the  end  of 
March  \vere  .^36.O(i0.0(X)  per  day.  Accordingly,  the  third  great 
long  term  war  Luin  was  ..ffererl  in  Januarv.  1917.  This  con- 
sisted of  twr,  different  kinds  of  bonds:  (l')  a  5  per  cent  loan 
redeemable  in  1929-1<M7  issued  at  95.  and  (2)  a  4  per  cent  loan 
redeemable  in  1'>_'9-H)42  issued  at  par.  The  5  per  cent  bonds 
were  subject  to  the  income  tax,  while  the  4s  were  tax  free.  By  of- 
fering a  choice,  the  -roxernment  could  test  the  demand  for  ta.\-- 
free  bonds.  The  result  showed  a  striV-mg  preference  for  the 
ta.xable  bond  at  the  liigher  interest  rate,  for  out  of  over  $5,000.- 
(XX).000  subscribed  for  the  loan,  only  $110,000,000  was  for  the 


ill 


GREAT  BRITAIN  25 

tax-free  4s.  The  amount  of  the  loan  was  not  specified.  Pro- 
visicm  was  made  for  a  new  sort  of  sinking  fund  designed  to 
maintain  the  market  price  of  the  bonds.  This  was  a  fund  oi 
one-eighth  of  1  iMjr  cent  per  month  of  the  amount  of  each  loan, 
and  was  to  be  used  to  purchase  stocks  or  bonds  of  either  loan 
for  cancelation  when  the  market  price  fell  below  the  price  of 
issue.  Whenever  the  unexpended  balance  of  this  fund  fell  below 
S50,000,0(X)  further  purchase  was  to  cease  for  the  time  beinjj. 
Of  the  round  $5,000,000,000  secured  from  this  loan,  over  $4,000.- 
000.000  was  "new  money."  Up  to  this  time,  therefore,  this 
constituted  the  greatest  loan  in  the  financial  history  of  the  wot  Id. 
Details  of  the  chaiacter  of  the  subscriptions  are  given  in  the 
following  statement : ' 

Applications  through  Bank  of  England $4no7  0infrii 

Applications  through  post  offices ivt  ST^'mn 

Treasury  bills  converted  6S3SS97S0 

War  savings  certificates  purchased 96,500  OUO 

$5,001,564,750 

The  total  number  of  si»bscrif)ers  was  5,289.000  and  the  actual 
amount  received  from  the  loan  was  $4,734,635,000.  of  which  only 
$3,901,885,000  was  received  before  March  31. 

Still  another  loan  was  effected  before  the  end  of  the  fiscal 
year.  This  was  a  collateral  loan  for  S250.000.000.  the  third  of 
its  kind  placed  in  the  L'nited  States,  and  consisted  of  one  and 
two  year  notes  dated  Kebniary  1,  1917.  bearing  5.5  per  ceri 
interest.  The  notes  were  convertible  at  the  option  of  the  holder 
at  any  time  l^efore  maturity  into  •>'/,  per  cent  twenty  vear  bonds 
redeemable  in  1937.  They  were  payable  in  United  States  gold 
coin  or  in  English  sterling  at  the  fixed  rate  of  $4,865  to  the  pound. 
_In  addition  to  the  loans  already  described,  there  was  one  of 
SoO.000,000  from  Japan,  and  another  for  $50,000,000  froiii 
Canada,  but  this  latter  was  prohaI)ly  included  under  the  head 
"Other  debt"  in  the  Treasury  statement.  The  net  borrowings 
of  the  year  are  shown  in  the  following  table : 

•  Economist  (London).  March  3.  1917,  p.  424. 


-''  niRKl  r  AM)  IVDIRECT  COSTS  OK  THE  WAR 

BORROW  IXGS  DURING  1916-17 

Sou!-cc-  Amount 

Treasury    i)i!ls    $8,949,775,000 

4;  J  per  cent  war  loan,   19.^5-1945 2,120 

5  per  cent  Exchequer  bonds  (United  States  loans) 904,493,000 

6  per  cent  Exchequer  bonds  804,758,500 

War  expenditure  ccrtilicates    149,392i500 

War  savings  certificates 363'75o'()00 

0*er  debt  ;...";;;  l,659;479;405 

4  and  5  per  cent  war  loans 3,901,883,550 

Other  advances 988.150,00(1 

$17,721,684,075 

I.ess  :  Treasury  bills  redeemed $9,441,130,000 

War  loans  and  Kxchcquer  bonds  redeemed.  6,428,525 

War   expenditure   certificates 31,587,500 

Other   debt    93,029,925 

9,572,175,950 

Net  debt  created  by  borrowinj; $8,149,508,125 

Tlie  r.ritisli  debt  on  March  31.  1917.  stiXKl  at  $19,272,000,000, 
which  represented  an  increase  over  the  prewar  debt  of  three 
years  previous  of  .^1  5.7:i5,O0O,O(>O. 

Fiscal  Year.  1917-18 

The  budjjet  for  the  fiscal  year  1917-18  was  not  presented  until 
•May  2,  by  Mr.  Bonar  Law.  the  new  Chancellor  of  the  Exchequer. 
i:xpenditure  for  the  year  was  estimated  at  $11,451,905,000,  or 
an  average  of  $31,500,0(X)  a  day.  The  total  revenue  was  esti- 
mated at  $3,193,000,000 — an  increase  over  the  pre -'ous  year 
of  $325,860,000.  Few  changes  were  made  in  the  existing  taxes, 
the  net  increa  from  this  source  being  calculated  at  only  $130,- 
500,000.  Inc  d,  the  small  addition  to  taxation  was  the  moit 
striking  feature  of  the  budget,  and  one  which  called  forth  ad- 
verse criticism.  An  extra  Is.  lOd.  in  the  ^ound  on  tobacco  was 
expected  to  bring  in  $30,000,000;  an  increase  in  the  entertain- 
ments tax  (on  tickets  costing  more  than  2d.),  $5,000,000,  and 
$100,000,000  additional  was  expected  from  the  excess  profits 
tax  which  was  raised  to  80  per  cent.'  the  munitions  levy  being 
consolidated  with  it.     On  the  other  hand,   further  rebates  on 

•  By  the  budget  of  .'Xpril  30,  1919,  the  rate  of  this  tax  was  reduced  to  40 
per  cent. 


n  I 


•  ;REAT  BRITAIN  27 

liciuor  license  duties  reduced  the  yield  from  this  source  by 
S4.50U,0O0.  J'his  left  a  deficit  of  $8,258,905,000  to  be  met  by 
Ijorrowing. 

As  the  budget  made  such  slight  additions  to  tax  revenue,  it 
was  evident  that  still  larger  use  would  have  to  be  made  of  lir- 
rowing  to  meet  tiie  steadily  growing  war  expenditures.  These 
were  now  estimated  tor  the  coming  year  at  over  $31,500,000  a 
<lay,  as  against  $25,000,000  the  previous  year.  But  even  this 
enlarged  estimate  speedily  proved  madequate.'  The  following 
table  shows  the  expenditures  by  quarters  : 


WAR  EXPENDITURES  BV  QUARTERS,   1917-18 
^^"°'^  Number  of  Days     Per  Quarter  Per  Day 

hSv/sT^-'^ifio,^-   •  ^'  $3,356,435,000  $36,885,000 

July  1-Septembcr  30,  1917. . .  92  3  283  830000  ^^V.Q^nnn 

October  1-Deccmber  31.  1917  92  3505^5000  18  lO^'Z 

January  1-March  31.  1918. .  .  90  JS3;Wi;H5  lf!m3m 

Total  and  average $13,479,101,715  $32,182,172 

These  figures  proved  to  be  practically  the  highwater  mark,  as 
the  entrance  of  the  United  States  into  the  war  on  April  6,  1917, 
afforded  welcome  relief  by  transferring  to  the  new  belligerent 
a  part  of  the  enormous  financial  burden  which  Great  Britain 
had  until  now  been  forced  to  carry  on  behalf  of  the  Allies.  Not 
only  this  but  the  British  Government  was  able  to  secure  from 
the  United  States  much  needed  assistance  to  her  own  finances. 
The  advances  by  the  United  States  Government  to  European 
Allies  began  in  April.  1917,  almost  contemporaneously  with  its 
entrance  into  the  war,  and  those  to  Great  Britain  averaged  about 
$400,000,000  a  month  for  the  fiscal  year.  The  following  table 
shows  Greot  Britain's  actual  transactions  for  the  fiscal  year: 

g^^..r::::::::::;::::::::::;::::::::::::::::::::::''i:-:|-gf 

*^    10,196,769,005 

♦  V!l  1  *'*l"'**  '"  "'^  A""'^  °f  Commons.  July  24,   1917.  Mr    McKenna 
T'jjy%m7%'^329^^^  ""'""  '^°"'''  '"■'*'^'^  ^^  $40,000,000.    Chroni- 


DIRECT  AND  I.N'DIKKCT  COSTS  OK  TlIK  U  AR 


H 


I  i 


li 


I  his  year  was  marked  by  a  srcaler  dependence  ujwn  Treasury 
bills  and  short  term  Ilxchefjuer  bonds  than  any  previous  period. 
The  outstanding  issues  of  the  former  grew  by  $2,544,500,000 
during  the  fiscal  year,  while  the  latter  increased  $471,500,000. 
Chancellor  Bonar  Law  was  much  in  favor  of  this  method  of 
short  term  borrowing,  supplemented  by  the  plan  of  continuous 
sale  of  war  bonds  which  was  l)rought  out  later  in  the  year.  In 
December,  1917,  announcement  was  made  that  no  further  issues 
of  Exchequer  bonds  would  be  made. 

The  plan  of  continuous  borrowing  just  alluded  to  was  known 
as  the  "Drummond  Fraser  Day-to-Day  Borrowing."  This  was 
a  change  from  the  previous  policy  of  a  fixed  subscription  period 
and  constituted  an  innovation  in  British  finance.  National  war 
Iwnds  were  placed  on  continuous  sale  at  the  Treasury,  the  Bank 
of  l-jigland,  the  post  offices,  and  other  places,  .\ccording  to  a 
statement  by  the  Chancellor  of  the  Exchequer,  the  minimum 
amount  needed  to  be  subscribed  by  this  method  was  $100,000,000 
per  week.  This  rate  was  just  about  maintained  during  the  re- 
mainder of  the  fiscal  year,  the  total  subscriptions  from  October  1 , 
1917.  to  the  end  of  March,  1918,  amounting  to  about  $2,750,- 
000,000.  As  part  of  this  program  of  continuous  sale,  there 
should  be  mentioned  also  the  war  savings  certificates  which 
amounted  during  the  fiscal  year  to  $311,000,000. 

The  lionds  issued  under  the  plan  of  continuous  .sale,  which 
coiLsiuuted  Great  Britain's  fourth  war  loan,  consisted  of  two 
kinds  of  nati-inal  war  lx>nds.  The  first  of  these  was  a  4  per 
cent  tax-free  Inrnd  similar  to  that  of  the  previous  January  issue, 
and  was  jjayable  at  10.=;  in  1927.  The  other  was  a  5  per  cent 
bond  with  three  maturities,  five,  seven  and  ten  years,  payable  at 
102.  103  and  105  respectively.  The  bonds  were  issued  at  par. 
The  holders  cf  these  national  war  bonds  were  given  the  privi- 
lege of  converting  them  into  the  4  and  5  per  cent  issues  respec- 
tively (^f  the  third  loan,  at  95  and  100,  as  well  as  into  any  future 
war  l)onds.  Holders  of  the  V/.  per  cent  war  loan  of  1915 
and  the  various  issues  of  Exchequer  lionds  might  convert  these 
into  the  new  national  bond?  maturing  in  1924  or  1927  of  either 


CJREAT   BRITAIN 


>o 


descrii)tion.     Tlie  credit  transactions  for  the  fiscal  year  may  be 
stated  as  follows: 


B(JI<ROWINGS  DURING  1917  18 

For™  Anuiunt 

Treasury  bills,  net   $2,544,425,000 

5  per  cent  Exchequer  bonds,  1922 411,352,000 

f)  per  cent  Exchequer  bonds,  1920 !  220^000 

.3  per  cent  Exchequer  bonds,  1930 60,106,000 

War  savings  certificates  31ll00o!0OO 

Other  debt  [',[]  3.707,'52o!490 

4  and  5  per  cent  war  loan 840,413,100 

National  war  bonds   [  3,071,075^000 

$10,946,111,590 
Less  redemptions : 

War  loans.  Exchequer  bonds  under  1917  act S114,578,18S 

War  expenditure  certificates,  converted 3,143,500 

Othor  debt,  retired   505,345,165 

Other  advances  repaid  126,275.735 

^ —  749.342,585 

Net  debt  created  by  l)orrowing $10,196,769,005 


RXI'EXDITLRES,    1918-19 

The  tifth  war  budget  2s  introduced  by  Mr.  Bonar  Law 
in  April,  1918.  This  estin  :d  the  year's  expenditures  at  $14,- 
860,000,000,  of  which  $4,210,250,000  was  to  be  raised  by  Uxa- 
tion,  and  the  remainder  secured  by  loans. '  According  to  this 
program  s(xne  23.3  per  cen*  of  the  year's  expenditures  (de- 
ducting normal  expenditure  and  advances  to  Allies  and  Do- 
minions) were  to  be  raised  by  taxation,  which  may  be  considered 
a  good  showing  for  the  fourth  year  of  the  war  The  budget 
was  severely  criticized  for  the  slight  additions  it  made  to  taxa- 
tion, as  it  provided  for  new  revenue  amounting,  according  to  the 

'  The  relation  of  revenue  to  expenditure  and  loans  is  shown  in  the  follow- 
ing table : 

Fiscal  Year  Expenditure            Revenue  Loans 

1913-14 $987,464,845  $991,214,485 

1914-15 2,802,367,665  1,133,470,000  $2,157,25o666 

1915-16 7,795,971,888  1,683,830,000  5,977.159,165 

1916-17 10,990,563,550  2.867,145.000  8.149.508125 

1917-18 13,481,107,025  3.536.170.000  10.1%,769.005 

1918-19 13.896.505.940  4.444.104.125  8.574.436.86(1 


Ik 


!li 


iff 

it  i 


'^"  DIRKCT  A.\D  INDIRHl  T  (  (ISTS  Ol-  TIIK  WAR 

estimate,  tu  t)nly  .So.?').(X)0.()0().'  llu-  leading  economic  jour- 
nals wore  a  unit  in  insistini;-  u\)ou  a  vijjoroiis  tax  policy  <->"d  in 
discountenancing  tiie  continuance  of  loans  on  a  large  scale.  The 
Chancellor's  term,  said  the  Ec  ist,  "has  been  marked  by 

highly  successful  borrowing.  a    he  has  another  chance  to 

prove  his  metal  as  a  tax  gatherer.  V\'e  can  only  hope  that  he 
will  not  foozle  bis  stroke  as  disastrously  as  he  did  a  year  ago, 
when  he  imposed  a  petty  .S30,000,0(X)  o.  fresh  taxation."  In  an 
article  headed  "Another  Year  of  Bad  Finance"  the  Nation  had 
the  following  to  say:  "The  debauchery  of  Iwrrowing  in  whicli 
ever  higher  prices  are  paid  for  loaned  money  furnished  for  a 
large  part  out  of  swollen  war  profits  and  for  the  rest  out  of 
bank  inHation,  is  to  continue,  and  on  a  larger  scale  than  ever." 
And  finally,  the  Statist  apologetically  remarked,  "In  fairness 
to  bim  it  must  he  admilted  he  has  never  claimed  to  be  a  finan- 
cial expert."  - 

The  actual  expenditures  of  this  llscal  year  were  as  follows: 

I;'""""'"'"^'    $1.1,896.505,940 

'";;r"    4,444,104,125 

'-"='"' 9,873,.137.S15 

Mr.  I^w  .stated  his  financial  policy  in  this  language:  "My 
predecessor  laid  down  a  rule  which  I  adopted  last  year,  that 
in  presenting  the  budget  the  Chancellor  of  the  Exchequer  should 
aim  to  produce  such  a  result  that  on  the  assumption  that  the 
war  came  to  an  end  at  the  close  of  the  year  which  his  financial 
statement  covers,  there  will  be  sutiicient  re\enue,  without  new 
l)orrowing  or  taxation,  to  make  sure  that  Iwth  normal  expendi- 
ture and  debt  charge  would  be  met  in  that  way."    Such  a  state- 

I  The  new  ta.xation  added  by  lach  budget  during  the  war  is  shown  in  the 
lOiiownig  tahle : 

Bud.get  of  . 

A     -1    ,«. ..  Amount 

Aprd,   1914   «A7oa^onn 

November    1914  ?6/,995,000 

September'     9  5   360,500,000 

Anr?    IQIfi  559,560,000 

S'    m 364,750;000 

A„Hi    ,9,0  325,860,000 

^P"'-  '^'''  ,139.000.000 

=  Quoted  in  Lkiiig  .t^/c,  vol.  297,  pp.  509.  636.  6,15. 


If  I 


GREAT  BRITAIN  31 

ment  iiiij,'lit  quiet  a  man  of  affairs  interested  only  in  the  problem 
ot  meeting  maturing  bills,  but  it  could  hardly  satisfy  the  student 
of  finance. 

Even  before  the  conclusion  of  the  previous  fiscal  year  it  had 
been  found  necessary  to  grant  another  vote  of  credit,  but  as  its 
proceeds  were  spent  during  the  fiscal  year  1918-19,  it  may  prop- 
erly be  included  in  the  account  of  this  year.  The  followinij 
votes  of  credit  were  granted  during  this  year : 

^'^"■•^'j/   $2,500,(X)0.000 

J""^  'f  ; 2,500,000,000 

.^ugust  1  . 3,.=;oo,ooo,ooo 

November   12   .3,500,000,00) 

The  August  vote  was  expected  to  provide  funds  to  carry  on 
^he  war  until  the  end  of  October  so  that  with  its  passage  the  war 
credits  may  be  said  to  have  ended  as  the  armistice  came  so  soon 
thereafter.  The  total  credits  through  August  amounted  to 
$40,210,000,000. 

The  end  of  the  fourth  year  of  war  led  to  various  calcula- 
tions as  to  the  cost  of  the  war.  ;\ccording  to  a  statement  pub- 
lished by  the  Treasury  on  July  30,  1918,  the  war  was  then  cost- 
ing the  people  of  Great  Britain  .S34.920,000  a  day,  or  nearly 
$25,000  a  minute.  The  total  government  expenditure  during  the 
war  period  was  placed  at  $39,650,000,000,  of  which  $10,105.- 

000,000   had    been    provided    by    revenue   and    the   balance 

$29,545,000,000— was  borrowed.  However,  if  normal  prewar 
expenditures,  loans  to  .\llies,  and  other  similar  items  be  de- 
ducted, the  net  cost  of  the  war  would  be  $35,650,000,000.  On 
this  basis  23.4  per  cent  was  raised  by  taxation.  • 

If  the  date  of  the  armistice  be  selected  as  marking  the  end  of 
the  war,  and  consequently  a  convenient  period  for  estimating 
its  costs,  the  following  statement  gives  the  facts  from  the  be- 
ginning of  the  war  to  its  practical  cessation.  The  total  expendi- 
ture by  Great  Britain  from  August  1,  1914,  to  November  16. 
1918,  amounted  to  $43,311,696,385.    Of  this  amount  $11,101,- 

^New  York  Tribune,  July  31,  1918;  Ecoiwrnist  (London),  August  3,  1918, 


^2 


DIRKCr  AM)  INUIKEC  r  COSTS  OF  TJIE  WAR 


!i 


J      8 
j      I 

H 


n  « 


l/"cS.5V5  \va>  raiM-d  by  taxation,  ami  $32,210,517.;90  by  means 
ot  loans.  In  round  nunvbers.  about  one  quarter  of  the  expendi- 
Uire  was  defrayed  out  of  revenue,  but  this  includes  the  normal 
peace  time  e.\i)enditure  as  well  as  those  for  war.  Since  the  costs 
of  the  war  did  not  cease  with  the  signing  of  the  armistice,  how- 
ever, the  final  estimate  of  exjienditure  must  be  deferred  until  a 
later  date. 

Lo.vNs,  191&-19 

The  loans  Nvhich  were  obtained  this  year  came  principally 
from  two  sources :  (I)  continued  sale  of  national  war  bonds  at 
liome.  and  (J)  advances  from  the  United  States  Government. 
The  sale  of  Kxchequer  Iwnds  had  been  stopped  in  December, 
1914.  so  that  no  further  use  was  made  of  this  form  of  obligation' 
•  Inrinjf  the  year.  Only  slight  resort  was  made  to  Treasury  bills, 
the  increase  of  these  at  the  end  of  the  year  amounting  only  to 
$750,000,000  net.  From  the  sale  of  war  bonds  about  $5,000,- 
000,000  was  secured  down  to  their  withdrawal  on  January  18, 

The  plan  of  continuous  borrowing  had  on  the  whole  been 
successful.  It  liad  avoided  the  frantic  drives  and  the  periodic 
disturbance  to  the  money  market  which  attended  large  loans 
vvith  fixed  periods  of  sub.^cription.  Mr.  Dnimmond  Fraser,  the 
deviser  of  this  plan,  in  a  letter  to  the  Economist '  claimed  for 
that  plan  the  following  advantages:  (a)  it  has  saved  the  gov- 
ernment in  interest  alone  a  sufficient  sum  to  start  a  sinking  fund 
for  the  repayment  of  the  lx)nds;  (b)  it  has  provided  a  substan- 
tial depreciation  fund  for  fhe  1917  war  loan;  (c)  it  aided 
the  rise  in  the  market  price  of  the  1917  war  loan  to  the  issue 
price,  making  it  unnecessarv-  for  the  government  to  find  money 
tnr  the  depreciation  fund  promised  in  the  prospectus,  and  (d) 
by  furnishing  a  steady  and  continuous  stream  of  subscriptions 
It  undoubtedly  stimulated  savings  out  of  current  earnings,  rather 
than  the  purchase  of  bonds  out  of  loans  at  banks  with  the  at- 
tendant inflation.     But  even  the  day  to  day  borrowing  system 

'  (>ct(il)er  .\  1918.  ],.  424. 


GREAT  BRITAIN- 


ii 


^vas  not  without  its  occasional  outbreaks  of  feverish  appeals  in 
the  way  of  "special  weeks,"  of  competition  between  cities,  and 
other  methods  of  arousing  flagging  interest  in  th^  loan.     One 
of  the  methods  adopted  to  stimulate  popular  subscription  was  in- 
troduced by  certain  department  stores  in  London.     Some  $25,- 
000,000  of  bonds  were  sold,  each  bearing  a  distinctive  number. 
At  the  end  of  the  "campaign"  these  numbers  were  drawn  and 
prizes  ranging  from  $2,500  down  to  $25  were  given.    The  draw- 
mg  was  conducted  by  no  less  distinguished  persons  than  the 
Mayor  of  London  and  Lady  Asquith.     This  was.  however,  a 
purely  private  venture  carried  through  at  the  expense  of  its 
promoters  who  undoubtedly  found  its  reward  in  the  advertising 
thex-  secured.     A  similar  plan  was  agitated   by  the  press   for 
adoption  by  the  government,  but  was  rejected  by  the  govern- 
ment as  both  unnecessary  and  undesirable;   in   fact,   with   the 
exception  of  Germany,  whose  premium  loans  contai!>ed  a  lot- 
tery feature,  no  belligerent  made  use  of  the  lottery  plan  durine 
the  war.  ^ 

Another  resource  which  Great  Britain  used  during  the  year 
was  the  war  savings  certificates.  With  the  establishment  in 
1916  of  the  National  War  Savings  Committee  much  had  been 
done  to  encourage  the  savings  of  small  investors.  By  the  be- 
ginning of  1918  there  were  fifteen  hundred  local  war  savings 
committees  established  to  promote  war  savings  bv  publicity  and 
other  methods,  and  to  organize  cooperative  associations  for  sav- 
ings by  instalments.  Forty  thousand  such  associations  were  re- 
ported at  work  at  the  beginning  of  the  year  1918. '  School  as- 
sociations were  also  fontied.  and  much  was  done  to  further  the 
savings  and  investment  habits  permanently  as  well  as  for  the 
war.  fhe  sale  of  war  savings  certificates  during  the  fiscal  year 
1918-19  amounted  to  $450,000,000. 

A  sixth  war  loan  was  issued  on  February  1,  1919  This  con- 
sisted of  two  issues  of  5  per  cent  bonds  subject  to  the  income 
tax  for  five  and  ten  years  respectively,  and  a  four  per  cent  tax 


»  B.  E.  Bladcett,/*England's  EflFort  to  Pay  for  the  War 
Academy  of  Political  Science,  vol.  7,  pp.  59-70. 


,"  in  Proceedings  of 


34  l)lkK(  r    \\f)  INDIRECT  COSTS  OF  THE  WAR 

compounded  Iwnul  tor  ten  years.  The  issue  and  redemption 
prices  remained  the  same  as  the  previous  loan.  The  new  issue 
differed  from  the  old  in  that  the  seven  year  bond  was  dropped 
and  the  new  Ijonds  carried  no  right  of  conversion  into  past  or 
future  war  loans. 

A  vaUia')le  supplement  to  the  internal  war  loans  was  the  ad- 
vance of  funds  by  the  L'nited  States  Govemmen  to  Great  Britain 
in  common  with  the  other  Allies.  Those  to  Great  Britain 
amounted  at  the  end  of  the  fiscal  year  1919  to  $4,116,323,825. 

Wiiile  Great  ISritain  was  by  no  means  financially  exhausted, 
it  may  safely  l)e  asserted  that  the  assistance  of  the  United  States 
afforded  a  welcome,  if  not  indispensable,  relief  to  the  British 
Treasury.  Tiie  mere  loan  of  this  amount  was  the  smallest  part 
of  the  financial  relief  afforded,  for  the  United  States  at  the 
same  time  assumed  the  burden  of  financing  the  other  Allies 
and  thus  «ave  to  Great  Britain  a  free  hand  in  the  ordering  of 
her  own  finances.  The  credit  transactions  of  the  fiscal  year 
1*>18-19  are  sh(jwn  in  the  following  table: 

BORROWINGS  DURING  1918-19 
f""""  Amount 

5  per  cent  Kxcliequer  bonds,  1922 $20,175 

6  per  cent  Exchequer  bonds,  1920 4J85 

3  per  cent  Exchequer  bonds,  1930 4,018i000 

War  savings  certificates 447,500  000 

Other  debt  { U.  S.  advances,  etc.) 2,776!l23io20 

National  war  bonds  S,332,068i900 

\\d\<  and   Means  advances 1,313,'603!235 

$9,873,337,515 

l-ess :  Redeemed  Treasury  bills   $82,320,000 

War  hians.  Exchequer  bonds,  etc 329,795,360 

War  expenditure  certificates   114,661,500 

Other  debt    772,123,795 

1,298,900,655 

Net  debt  created  by  borrowiuR $8,574,436,860 

Tile  loan  transactions  of  the  four  and  a  half  years  of  war 
are  clearly  shown  in  the  following  table,  which  indicates  the 
amounts  of  the  various  loans,  the  extent  of  their  conversions 
into  subsequent  loans,  and  the  dependence  which  was  placed  at 
different  periotls  uptrn  the  different  methods  of  borrowing.     In 


GREAT  BRITAIN 


35 


the  last  column  are  shown  the  growth  of  the  debt  and  its  distri- 
bution among  the  \  arioiis  forms  of  obligation : 


GROWTH  AND  CHANGES  IN  THE  NATIONAL  DEBT 
1914  to  1919  (in  millions  of  dollars) 
Aug.l,  Mar.  31.    Mar.  31,  Mar.  31,   Mar.  31, 


Form 

1914 

Funded  debt      2,933.5 
Term  annuities     148.0 

3'/3%  war  stock     

4'A%  war  stock     

4&S%  war  stock  

National  war 

bonds  .... 

Treasury  bills        77.5 
Exchequer 

bonds.  102.5 

War  savings 

certificates  

War  expenditure 

certificates  

Other  debt 

.American  loan       .... 
Temporary 

advances  S.O 


191S 
2.916.5 

140.0 
1.74S.S 


386.0 
337.0 


1916 

1.S92.S 

130.S 

314.0 

4.500.0 


2,834.0 

885.0 

7.0 


46.0 
257.0 


1917 
1,589.0 
120.0 
313.5 
100.0 
9,812.0 

2,318.5 

1,601.5 

372.5 

118.0 

1.582.5 

^57.0 


.„.„   ■  Mar.  31,    Increase 

1918  1919      Decrease 

1.S88.S  1,588.5  -  1.345.0 

109.5  109.5  -      38.5 

313.5  313.5  +     313.5 

80.5  80.5  +       80.5 

10.452.5  9,969.0  +  9,969.0 

3,129.0  8,461.0  +  8,461.0 

4,867.0  4,785.0  +  4.707.5 

1,958.5  1,963.0  +  1.860.5 

688.5  1,136.5  +  1.136.5 

114.5 

4,684.5  6.679.0  +  6,6790 

257.0  257.0+     257.0 


99.5      1.087.5        961.5     2.282.5  +  2,277.5 


Other  capital 
liabilities 


3.266.5    5.525.0    10.665.5    19272.0    29,205.0    37,625.0  +34.358.5 


286.        285.  283.5         261. 


246. 


236.    -      50. 


Total  liabilities  3,552.5  5,810.0  10.949.0  19,533.  29,451.  37.861.  +34^3081 
The  account  of  British  borrowing  would  not  be  complete  with- 
out a  statement  of  the  bank  inflation  which  took  place  during 
this  period.  On  this  point  the  following  quotation  may  be  made 
from  the  London  Economist, '  which  never  tired  of  criticizing 
the  government  for  lack  of  a  sufficiently  vigorous  policy  of  taxa- 
tion and  arraigning  it  for  its  loan  policy  which,  it  insisted,  was 
inevitably  followed  by  inflation:  "Apart  from  this  question  of 
taxation,  on  which  our  present  rulers  have  shown  such  serious 
faults,  they  have  simply  followed  the  old  fashioned  system  of 
borrowing  as  much  as  they  could  at  home  and  abroad,  and  filling 
the  gaps  that  still  remained  between  the  receipts  and  the  outgo 
by  watering  the  currency  and  raising  the  wind  by  means  of  bank 
credits." 


'  November  23,  1918,  p.  703. 


M, 


DIRECT  ANO  INDIRECT  COSTS  Ol    THE  W  \K 


Ihc  extent  of  the  growth  of  fiduciary  money  in  Great  Britain 
IS  shown  for  the  first  four  years  of  the  war  in  the  following  tal>Ie  : 


July  10,  1914 


Form 

Fiduciary  issue  of  Bank  of  England $92250000 

Currency  notes  not  covered  by  gold "       ... 


326.840,000 
142,500,000 


July  10,  1918 

$92,250,000 

1,152,060,000 

Bank  of  England  notes  is.ued  against  coin  and  bul-  ^^^^    ?T^^W^ 

^  "°"     1Q2  -isn  f¥¥l 

Currency  notes  covered  by  gold »«,oou,viuu 

Estimated  amount  of  gold  coin  held  by  bank  ex-  

elusive  of   gold   coin   held  by   issue   department 

HanK  of  l.nRland  and  in  public  circulation 615.000,000         200,000.000 

in  a  countr>'  like  Great  Britain  where  such  a  small  proportion 
ot  the  total  volume  of  business  is  transacted  by  means  of  actual 
cash,  such  a  table  as  that  just  given  by  no  means  indicates  the 
real  mflation  of  the  total  currency  (notes  plus  deposits)  which 
had  taken  place  during  this  period.  This  is  better  indicated  by 
the  growth  in  the  item  of  deposits.  As  the  banking  system  is 
centralized  to  such  a  marked  degree  in  the  Bank  of  England  a 
record  of  the  changes  in  the  chief  items  of  its  statement  will  show 
the  expansion  along  this  line: 

BANK  OF  ENGLAND'S  COMPARATIVE  STATEMENTS  > 


(in  millions  of  dollars) 


1914  1915 

^.      ,    .  July  29      July  28 

C..-culation 148,530      167,655 

Public  deposits    63.565 

Other   deposits    272,090 

Government   securities    55.025 

Other    securities    236,535 

Reserve  notes  and  coin 134,375 

Coin    and   bullion 190^655 


1916 
July  26 
180,225 
888,180      264.945 


477.700 
265.77S 
960.975 
229,125 


426,205 
,710,940 
376,095 
193,905 


304,530      281,880 


Ratio  reserves  to  liabilities.. 
Bank  rate   


40.03 

4 


16.77 

5 


28.05 
6 


1917 
July  25 
193.680 
233,070 
634.195 
240.635 
556.825 
159,210 
265,645 

18.36 
5 


1918 
July  24 
278,715 
173,285 
68,1,490 
280.310 
516.595 
149.220 
355,690 

17.41 

S 


Taxation,  1918-19 


In  the  budget  for  1918-19  Chancellor  Law  estimated  the  reve- 
nues  at  $4,210,250,000.  of  which  $339,000,000  was  to  be  gained 

'  Chronicle,  July  27,  1918,  p.  320. 


GRE.\T  BRITAIN 


37 


trom  new  taxation,  a  third  of  which  was  due  to  an  increase  in 
the  income  tax  from  Ss.  to  6s.  in  the  pound.     No  change  was 
proposed  in  the  tax  on  incomes  less  than  $2,500.     The  supertax 
was  raised  from  Is.  to  4s.  6d.  in  the  pound.     From  these  two 
taxes    ^gether,  a  yield  of  $114,750,UOO  was  anticipated.     Cus- 
toms \wre  estimated  to  bring  in  an  addit    iial  $114,250,000,  the 
chief  items  being  an  increase  in  the  tobacco  tax  from  Is.  to  8s!  2d 
per  pound,  and  of  sugar  from  lis.  8d.  to  25s.  8d.  per  hundred- 
weight.    A  doubling  of  the  tax  on  spirits,  beer,  and  matches  was 
expected  to  yield  $89,250,000  additional,  while  the  balance  was 
to  \k  obtained  from  an  increase  -n  the  stamp  duty  on  checks  and 
an  mcrease  in  postal  rates,     /almost  two-thirds  of  the  increase  in 
f xistmg  taxation  was  thus  to  be  obtained  from  indirect  taxes. 

.\  luxury  tax  was  also  voted  to  be  put  into  effect  when  the 
committee  to  which  it  was  referred  should  agree  on  the  details. 
This  was  to  be  at  the  rate  of  2d.  in  the  shilling  or  6  per  cent,  col- 
lected by  means  of  a  stamp  duty.     The  so-called  luxury  tax  com- 
mittee made  its  report  to  the  Chancellor  in  August, »  dividing 
articles  into  two  groups:  (a)  those  in  Schedule  A  on  which  the 
tax  was  to  be  paid  whatever  the  price  and  which  included  the 
following  articles:  jewelry,   fans;  perfumes,  liveries,   pictures, 
sculptures,  liquors,  clothing  made  of  silk  or  furs  or  trimmed  with 
fur,  rents  for  fishing  and  shooting  rights,  riding  and  hunting 
clothes,  pianos  and  musical  instruments,  billiard  tables,  yachts 
and  motor  cars;  (b)  Schedule  B  included  a  list  of  articles  on 
which  the  tax  was  to  be  paid  when  the  price  was  above  certain 
specified  minimums— such  as  meals  and  accommodations  at  clubs, 
hotels  and  lodgings;  shoes,  hats,  furniture,  thoroughbred  horses, 
dogs,  bicycles,  and  all  articles  for  personal  use.     The  tax  was  a 
well  meant  effort  to  take  toll  of  those  who  spent  money  on  super- 
fluities or  unnecessarily  costly  articles,  but  the  committee  was 
criticized  by  the  Economist  '  on  the  ground  that  it  never  really 
made  up  its  mind  whether  its  object  was  "to  get  revenue  or  check 

» Chronicle.  August  17.  1918.  p.  630. 
2  August  17.  1918,  p.  205. 


.■1 


38  DIRECT  AND  INDIREl  T  t  OSTS  {)!    Til  K  WAR 

ixiK'iKliture."     Owinj;  ,i,  the  ncwm-ss  of  the  tax.  the  committee 
«Ii(l  iK-t  vi-imire  t<j  fstimatf  the  exi)ectecl  yield. 

In  tin-  foIhMsiiiK  tal»lf  i>  ^nvu  a  Mimniary  statement  of  the 
n■a•iI)t^  in, 111  taxation  (JuriiiK  the  six  years' ending  .March  Jl, 

RF.VK.VUK,  1914  TO  191V 

(In  thousands  uf  dulUrs) 

Fiscal  year  ending  March  31 

tuZion  '"''        '"''  ''''  •'"^  '^'^  »"' 

}:""»?°"'*    '72ZiO  19J,310  298,030  352805  356  305  Snom 

\^'"'   ,;. ^.^7.950  211.565  306 05O  281.900  mSM  wlS 

hstate  duties...  130,795  141.910  155.175  156160  Mwn  l^ivin 

^•»7»    49,830  37.885  33^20  i^j^  S  elm 

h^"""''*  J'SW  J.150  3.300  3,200  3325  I'm 

Hou..e  duty   .  10,000  9,650  9,950  9700  9«5o  9  sS 

Property,  iiiLon.i,  •  ^-^ 

Fxce'sfp'ofits-^^"^'^    ■'^•*^       "'-^    ''«25,165     1,197,545     1.4SS.930 
UnHt.Ki«    ^^575     j;066    __,,ffi   ^   ^"jg    ^ 

810,145    946.525    1.450,440    2,570.S40    3,06l200    3.920,390 

II  XonlaJT  Revenues 
Postal   service        105,950     102,000       120.500       121,750       126000       147000 
Teegraph  service     15,400      15.000        16,750        16  750         17  500         19000 

iu«"cinaf'and       ^''"^       ^'^^  "'^^  ^^^  •^•"50  3,800 

.sundry   loans..      7,895        6,380        12,155        40,275         30280         58  W 

Miscellaneous    ..    ^^^5      »^         48.980         82.580       2S       2^:5^ 

176.060    186.940      233.385       296,605    "^O^^O    ~52l713 
^"""^    '°'='' 986.2051,133,470    1.683,830    2,867.145    3.536.170    4,444,103 

Total  1916  $1,133,470,000 

Tola    19  7  1.683,830.000 

Total  1918 :.;::::;;:; ffS-l^^-SSS 

Total  1919  3.536,170,000 

4.444.103,000 

$13,664,718,000 
Excess  ahov.  normal   $8,734,593,000 

The  British  chancellors  have  been  criticized,  and  bv  none  more 
severely  than  by  their  own  people  and  journals,  for  not  imposing 


tiRKAT    BRITAIN 


39 


heavier  taxation,  especially  at  the  beginning  of  the  war.     To 
such  crr-s  an  impressive  answer  is  given  in  the  table  aUne. 
An  incrt-se  of  revenue  from  less  than  $1.000.0a).000  to  over 
$4,000,000,000  during  the  course  of  a  ruinous  war   shows  a  re- 
markable applicatio  .  of  the  tax  policy.     It  must  I*  said,  how- 
ever, that  the  government  was  slow  in  initiating  a  vigorous  tax 
system.     The  increase  of  revenue  for  191 5  over  the  previous  year 
was  only  14.35  per  cent  and  for  the  small  increase  Mr.  iJoyd 
(ieorge  has  been  severely  criticized.     He  seems  to  have  held  the 
view  that  war  in  itself  constituted  a  cnishing  Iwirden  upon  the 
I>eople.  and  that  they  would  not  be  able  to  stand  additional  taxa- 
tion.    It  was  soon  discovered,  however,  that  this  war  was  bring- 
ing to  Great  Britain,  or  at  least  to  certain  sections  of  it.  consid- 
erable war  prosperity,  and  the  next  two  years  saw  a  more  \  ig- 
orous  resort  to  taxation,  the  increase  of  the  fiscal  year  1916  over 
1915  being  48.56  per  cent,  while  1917  registered  a  still  greater 
relative  increase,  or  70.27  per  cent  over  1916.     This  measuretl 
the  apex,  for  while  each  of  the  next  two  years  showed  an  al)so- 
lute  growth  in  revenue,  the  relative  increase  declined. 

The  question  whether  as  much  was  raised  from  taxation  as 
should  have  been,  or  whether  Great  Britain  relied  too  much  upcn 
loans  to  finance  the  war,  is  a  problem  into  which  it  is  not  possible 
to  enter  here.  In  general,  it  may  be  said  that  Great  Britain  met 
about  one-fourth  of  the  cost  of  the  war  out  of  revenue.  While 
this  fell  below  the  standard  of  47  per  cent  which  had  been  real- 
ized during  the  Napoleonic  Wars  and  which  was  continuously 
held  up  as  a  goal  b>-  those  who  urged  heavier  taxation,  the  mag- 
nitude of  the  expenditures  during  the  present  struggle  mav  be 
urged  as  an  excuse,  if  not  a  reason,  for  falling  short  of  this  ideal. 
The  following  table  shows  the  ratio  of  taxes  to  expenditures : 


I  1 
I  -  i 


;  1  i 


40 


Vcar 

1914 

1915 

1916 

1917 

1918 

1919 


iJIREi  T  AXU  INDIRECT  COSTS  OF  THE  WAR 
RATIO  OF  TAXES  TO  EXPiiNDITURES  i 


(In  thousands  of  dollars j 


Expcndittiris 

$987.-465 

2.(«)2..%- 

7,795.791 

10.990,5<x? 

13,481,107 

13.8%.  506 


Revenues 
$991,214 
1,133,470 
1.683,830 
2,867,145 
3,536,170 
4,444,140 


Ratio 
100 
40.7 
21.6 
26.1 
27.8 
31.9 


Taxes 
$810,145 

946.525 
1,450,440 
2,570,540 
3,065^00 
3,920,390 


Ratio  Taxes  to 
Expenditures 

82.5 

33.6 

18.6 

23.4 

24.8 

28.1 


One  of  the  stnk.ng  features  of  the  British  tax  program  was 
c  small  ,„,n,l,er  of  .ources  from  which  the  increasS  revenue 
na.  drawn.  More  than  half  of  all  came  from  the  income  and 
J-es.s^prot,s  taxes.  Moreover,  the  government  was  content  on 
he  whole  to  mcrease  the  rates  of  existing  taxes-with  the  very 
notable  exception  of  the  excess  war  profits  tax-rather  than  ex- 
IKTunem  w,th  new  and  untried  sources  of  revenue.  In  this  re- 
spect the  English  dififered  from  the  French  and  Italians 

Ilie  propr.rtion  of  tax  revenue  to  be  derived  from  direct  and 
.n.hrect  taxes  was  the  subject  of  frequent  discussion  and  a  greater 
resort  to  .hrect  taxation  was  very  generally  urged.     Reference 
to  tlH    able  g,ven  atove.  however,  will  show  that  considerably 
over  half  of  the  tax  revenues-at  least  after  the  excess  war  profits 
•.--x  .^'ot   into  working  order-was  derived   from   direct  taxes 
Moreover,  the  mdirect  taxes  were  of  considerable  value  in  check- 
jng  certain  forms  of  undesirable  expenditure.     This  was  particu- 
rly    rue  of  the  last  budget.     More  significant  in  this  Respect 
a.  the  slovuiess  in  introducing  taxation  to  check  extravagance 
and  undesirable  ex,,enditu.^e.     There  was  decided  timidity  ifim! 
posmg  drastic  taxes  on  beer  and  liquor  for  fear  of  offending  the 
uorkmg  classes,  and  not  until  the  war  was  practically  over  wa 
a  luxury  tax  mtn.luced.     Taking  it  all  in  all.  the  English  Z 

would  h.  much  hi^I.er.  For  tt  l^n.l9^s"tX{A^"^''^  T  "^  '^^^""« 
ratio  would  he  .^2.2.  322  357  31 7  r«n.  .•  i  *^I  cxpend.ture-revenue 
ratio  would  be  27.4,  274  320  and  301  re?n^  i'"'?''  "ul-^"^*^  expenditure-tax 
the  proportion  co,  tribu  ed  dur"ne  the  ,S  '^^  ^'''  "'"^  "  f*""  ''«'°«' 
f^  \fr.  Bernard  Mallett  (VZTkZeU&T9^,^^'''\^^'''^  """"l'"* 
--tu.e,  h,  fa.  „u.  host  showin^r/n/^fX^il^^tfer.?  ^^^J^'^' 


GREAT  BRITAIN  4] 

policy  showed  no  bold  originality,  but  proce  ed  along  well 
known  lines  with  cautious  steps.  Under  Chai..  llor  McKenna 
only  was  a  rea'ly  vigorous  use  made  of  the  taxing  power. 

A  careful  survey  of  the  finances  of  the  war  was  made  by  Sir 
Edward  Holden,  President  of  London  Joint  City  and  Midland 
Bank,  Ltd.,  at  the  general  meeting  of  the  shareholders  on  January 
29,  1919. '  According  to  his  statement,  the  total  war  expendi- 
ture from  August  1,  1914,  to  December  31.  1918,  amounted  to 
$40,640,000,000.  This  war  debt  was  met  by  receipts  from  reve- 
nue of  $7,120,000,000  and  borrowings  to  the  amount  of  $33,- 
520,000,000,  but  of  th-s  latter  amount  $6,917,500,000  was  loaned 
to  the  Allies  and  Dominions.  If  these  credits  be  deducted,  there 
has  been  a  net  addition  to  the  British  national  debt  durinr  the 
war  of  $33,750,000,000,  raising  it  from  $3,250,000,000  to  $37,- 
000,000,000.  If  50  per  cent  of  the  loans  made  to  the  Allies  be 
regarded  as  recoverable— an  estimate  made  by  the  Chancellor— 
and  some  other  adjustments  be  made,  the  net  amount  of  the  debt 
may  be  finally  set  d6\\n  at  about  $32,090,000,000.  "This  is  ap- 
proximately the  figure,"  concluded  Sir  Edward,  "on  which  we 
shall  have  to  pay  interest  and  sinking  fund  charges,  unless  means 
are  found  to  relieve  us  of  part  of  the  burden." 

The  cost  of  the  v  ar  to  Great  Britain  may  be  computed  by 
regarding  the  expenditure-  ($987,465,000)  and  the  revenues 
($991,214,000)  of  1913-14  as  normal,  and  deducting  that 
amount  from  the  expenditures  and  revenues  during  the  war 
period.  The  excess  expendit  .res  over  normal  would  thus  repre- 
sent the  war  costs,  as  follows : 

Expenditures : 

j'itll   $2,802,367,665 

'5-f   7,795.791,888 

\^f\l   10.990.563.550 

I'l-'S   13.481.107,025 

1918-19    13396.505,940 

$48,996,336,068 
Less  five  years  normal 4,937,324.200 

Excess,  or  war  cost $44,029,011,868 

I  Reported  in  the  Economist  (London),  February  1.  1919,  p.  142. 


I 


■^-  DIRECT  AXD  IVDIRElT  COSTS  OK  THE  WAR 

This  expenditure  was  met  by : 

Revenue . 

1914-1 S 

19\T\(,    $1,133,470,000 

191^7  1,683.830.000 

mtil :::.;. Tf^-l^-''" 

1010.1Q 3,536,172,825 

'^   4,444.103,000 

Less  five  years  normal .'. ^'J^SSi'Ss 

'■ — '■ —     8,708,741,310 

Creation  i.i  <Uljt : 

Borrowings — 

IJItlfi    $2,157,250,000 

9I6I7  5.977,159.165 

ioiSlo  8.149,508,125 

oLq  10,196,769,005 

"^'^'-  8.S74.4.%.860 

35,055,123.155 

$43,763,864,465 


i 


I    :'M 


CANADA 

The  war  came  at  an  inopportune  time  for  Canada,  for  the 
country  was  just  recovering  from  the  consequences  of  an  ex- 
ploded boom  which  brought  in  its  train  a  collapse  of  land  values, 
a  decline  in  imports,  a  falling  off  in  immigration,  tight  money, 
and  general  stagnation  of  trade.  The  debt  of  the  Dominion, 
while  not  nearly  so  great  as  that  of  European  nations,  imposed  a 
per  capiU  charge  four  times  that  in  the  United  States.  On 
March  31,  1914.  the  net  debt  was  $336,000,000.  In  addition  o 
this,  however,  there  was  an  indirect  debt  in  the  form  of  a  guar- 
antee of  railway  bonds  to  the  amount  of  $240,000,000. 

Like  its  wealthier  allies,  the  Canadian  Government  resorted  to 
bank  advances  at  the  outbreak  of  war  to  supply  it  with  the 
needed  funds.  The  organization  of  the  banks  in  Canada,  with 
a  well  develc^d  system  of  branch  banking,  is  much  more  cen- 
tralized than  in  the  United  States,  and  consequently  prompt  and 
effective  action  in  a  crisis  is  comparatively  easy.  Such  a  crisis 
arose  when  it  became  evident  that  war  in  Europe  was  inevitable 
and  that  Great  Britain  might  be  drawn  into  it.  The  stock  ex- 
change was  closed  on  July  29,  and  on  August  3  specie  payments 
were  suspended  in  order  to  conserve  the  gold  supply.  No 
general  moratorium  was  declared,  although  several  Canadian 
provinces,  including  Ontario,  Manitoba,  Saskatchewan,  Alberta 
and  British  Columbia  adopted  more  or  less  modified  moratoria. 
The  notes  in  circulation,  both  those  issued  by  the  Dominicm  and 
by  the  chartered  banks,  showed  a  steady  but  by  no  means  alarm- 
ing increase.  The  changes  in  the  volume  of  notes  issued  and  in 
circulation  during  the  next  four  years  are  shown  in  the  follow- 
ing table : 

XOTE  CIRCULATION,  1914-1919 

Kind  March  31, 1914    March  31, 1919 

Dominion  notes    $114,295,719         $298,058,697 

Chartered  bank  notes 96,848,384  214,576,870 

Total $211,144,093         $512,635,567 


44 


niREf  T  A.VD  INDIRECT  COSTS  OF  THE  WAR 

Expenditures,  1914-15 


Canada s  initial  war  expenditure  was  met  by  advances  from 
the  mother  coiintrj-.  An  arrangement  was  made  by  which  the 
liank  of  England  was  to  advance  all  the  money  needed  until  the 
enci  of  the  fiscal  year  (March  31.  1915)  for  Canada's  military 
ar.d  naval  expenditures.  These  were  limited  under  the  arrange- 
ment  to  the  exi,ense  of  mobilizing,  equipping,  and  training 
the  troops.  When  they  were  turned  over  to  we  British  mili- 
tary authorities  the  further  costs  were  assumed  by  the  British 
Government. 

Parliament  appropriated  $150,000,000  for  war  purposes  dur- 

$100,000,000  m  February,  1915.     Canada's  actual  expenditure 
to  March  31,  1915,  amounted  to  $65,939,492. 

Tax.\tiox.  1914-15 

Canada  immediately  inaugurated  a  taxation  program,  what 
may  be  called  the  first  war  budget  being  introduced  on  February 
11.1915.  This  proposed  an  addition  to  taxation  which  included 
a  general  increase  of  7]/,  per  cent  in  import  duties;  one-fourth 
of  1  per  cent  on  average  bank  notes  in  circulation ;  a  1  per  cent  tax 
on  the  gross  income  of  loan  and  trust  companies;  1  per  cent  on 
premiums  of  life  and  marine  insurance  policies;  1  per  cent  on 
cable  and  telegraphic  messages ;  graded  taxes  on  railway  and  other 
travel  and  accessory  facilities;  a  stamp  duty  on  checks,  money 
orders  and  ,x>stcards.  and  a  stamp  duty  on  proprietary  medicines, 
perfumes,  vies,  champagne.    The  measure  became  law  on  April 

^'Jnmnri  TT"^  '"  '"'*°^'  ^""^'^  ^^*  estimated  to  vield 
W.UUU.UOO  and  the  new  special  taxes  about  $8,000,000  annually 
This  $25,000,000  was  described  by  the  Finance  Minister  as  a 
considerable  burden."  Canada's  revenues  had  shown  a  steady 
growth  from  1910,  when  they  had  reached  $100,000,000  to  their 
highest  pinnacle  in  1913  of  $168,000,000.     A  loss  of  $30,000  000 

r,»'^l^'^'  ^'  *  "^"'^  °^  *^^  ^^''  '•«J"^«1  her  revenue  to 
$133,000,000  ;n  1914-15.     The  new  levies  resulted  in  a  total 


CANADA 


45 


revenue  return  of  $172,000,000  for  the  first  year  during  which 
they  were  operative  (1915-16),  although  aistOTis  duties  were 
still  $6,000,000  below  their  prewar  level. 

Expenditures,  1915-16 

In  his  budget  speech  of  February,  1916,  Minister  of  Finance 
White  stated  that  the  expenditures  for  the  first  nine  months  of 
the  fiscal  year  down  to  January  1,  1916,  amounted  to  ?85,748,- 
898,  bringing  the  total  costs  of  the  war  to  that  date  up  to  $146,- 
499,374.  The  main  factor  in  raising  the  cost  of  war  was 
the  increase  in  the  military  establishment  from  100,000  to 
500,000  men.  By  the  end  of  the  fiscal  year  war  expenditure 
reached  $169,384,654,  or  a  total  of  $237,961,308.  It  was  mani- 
fest that  the  sums  raised  during  the  preceding  year,  large  as 
they  seemed  at  the  time,  would  be  insufficient  to  meet  the  grow- 
ing expenditures.  Accordingly  the  new  budget  proposed  to 
borrow  $21 5.000,000  and  also  to  impose  new  taxes. 

Loans,  1915-16 

Canada's  first  external  loan  was  for  $25,000,000,  placed  in 
London  in  March,  1915,  and  was  a  4.5  per  cent  loan  payable  in 
1920  and  due  in  1925.  In  August,  1915,  she  placed  a  loan  of 
$45,000,000  in  New  York  to  meet  the  cost  of  supplies  and  mate- 
rials purchased  there.  The  loan  consisted  of :  (a)  $25,000,000 
one  year  notes,  and  (b)  $20,000,000  two  year  notes,  both  bearing 
5  per  cent. 

In  November,  1915,  the  first  internal  v  ar  loan  was  brought  out. 
It  was  dated  December  1,  1915,  and  was  a  5  per  cent  ten  year 
bond  issued  at  97.5,  the  amount  being  fixed  at  $50,000,000.  The 
totJil  subscriptions  amounted  to  $113,000,000,  of  which  $100,- 
000,000  was  accepted.  As  the  subscribers  to  this  loan  numbered 
only  24,862,  it  is  evident  that  most  of  the  loan  was  taken  by 
the  banks  and  corporations  or  by  wealthy  subscribers.  The  b<Mids 
of  this  and  subsequent  issues  were  tax  exempt. 


46 


DIRECT  AND  INDIRECT  COSTS  OK  THE  WAR 

Taxation,  1915-16 


The  most  i,n,K>rtant  item  in  the  tax  program  was  the  pro- 
posed excess  profits  tax.  Fro,n  munition  mating  firms.  isre^Z 
t.ve  of  the  .mount  of  their  capital,  and  from  other  comi^^s 
w.th  a  pa,d  up  capital  of  over  $50,000.  one  quarter  of  aU  net 
profits  over  7  per  cent  made  in  each  accounting  period  since  the 
beginning  of  the  war  was  to  be  collected.  It  w'as%stimated  that 
rnnuanv!  '""°''""    ^'''"'    $20.(X)0.000    to    $25,000,000 

Exi'ENDITrRES,   1916-17 

The  expenditures  for  this  fiscal  year  totaled  $498,342,388 
ut  which  war  expenditures  alone  amounted  to  $32186416o' 
hnngmg  war  expenditures  to  that  date  up  to  $559.'825.198: 
rh.  jears  expenditure  exceeded  the  combined  expenditures  of 
the  t«o  previous  years  by  over  $84,000,000. 

Loans,  1916-17 

c.f  !r\r7iV''°"'  i"'"^;''"'  '"^  ""'"'  ''''  ^^°-'"g  burden 
.t  Nvar,  and  the  mam  dependence  in  Canada,  as  in  every  other 

country,  was  of  necessity  on  loans.     During  this  year  Canada 

:c::7smi'y'''''  ^^^^^  -^  -  ^^-^'-  >"^^  ^-^ 

m  l^th  toT'T.  '  r  ""*  '"-''^""  y'^'  '«»"•  ?25.O(i).0OO 
ot  ^^hK:h  took  up  the  then  maturing  portion  of  the  1915  loan 

In  Septem^ber.  1916.  the  second  internal  war  loan  was^ued 

i-    K  l"""-  ^"°"'"^  '^^  «'bscriptions  among  the  36  526 

snbscnbers.     In  both  amount  and  number  of  suLribers    the 

-cond  loan  showed  an  encouraging  gro..h  over  the  first 

so  rapidly  had  expenditures  grown,  however,  that  a  third 
ban  was  necessary  within  five  months  after  the  second    and 

vaTorrJ::  ''"''•  ""•  ^'^  ^'^''•^  '"^^^^^  •-"  «f  $15O.00b.00O 
was  offered,  in  d  per  cent  twenty  year  bonds  issued  at  96.    The 


CANADA 


47 


total  subscriptions  aggregated  $260,000,000.  there  being  40,800 
subscribers,  but  only  the  original  amount  asked  was  accepted, 
allocation  being  made. 


Taxation,  1916-17 

Finance  Minister  White  delivered  a  very  brief  budget  speech 
on  .April  24,  in  which  he  stated  that  the  total  outlay  to  that  date, 
so  far  as  capable  of  ascertainment,  was  about  $600,000,000; 
that  as  a  result  of  this  war  expenditure,  the  Dominion  debt  had 
grown  from  $336,000,000  prewar  to  over  $900,000,000,  and 
estimated  that  by  March  31,  1918,  it  would  total  $1,200,000,000. 
He  announced  the  policy  of  the  government  to  be  "to  fund  the 
war  indebtedness  so  as  to  postpone  its  maturities  to  periods  well 
beyond  the  end  of  the  war,  and  by  increased  taxation  on  the  one 
hand  and  the  reduction  of  current  expenditure  on  the  other, 
to  meet  from  the  annual  income  all  annual  outlays,  including 
increased  interest  and  pension  charges,  and  in  addition  a  sub- 
stantial amount  of  the  war  expenditure  itself." 

The  actual  receipts  of  revenue  for  the  year  ending  March  31, 
1917,  were  $232,601,294,  which  was  an  increase  of  $61,000,000 
over  the  year  1916,  and  $100,000,000  over  the  year  1915.  The 
total  current  and  capital  expenditure,  including  war  interest  and 
charges  in  line  with  the  announced  policy,  had  amounted  to 
$172,000,000,  leaving  a  surplus  of  $60,000,000  for  war  purposes 
from  revenue.  Interest  on  the  public  debt  rose  from  $15,- 
700^000  in  1915,  to  $21,400,000  in  1916.  and  to  $35,800,000  in 
1917.     New  taxation  was  therefore  imperative. 

The  business  profits  war  tax  of  1916  was  increased  to  50 
per  cent  of  profits  in  excess  of  15  and  not  exceeding  20  per  cent, 
and  75  per  cent  of  all  profits  in  excess  of  20  per  cent.  The 
receipts  from  this  tax  under  the  first  rate  of  levy  amounted  to 
only  $12,500,000,  which  was  considerably  below  the  estimate. 
The  receipts  from  the  increased  rate  were  consenatively  esti- 
mated at  $20,000,000. 


W  1 


48  DIRECT  AND  INDIRECT  COSTS  OF  THE  WAR 

Expenditures,  1917-18 

:;  JJor^^"!'^'""*"''"'  ^^^  '^''  ^'^^^  y^^"-  amounted  to  $548.- 
347,283  of  which  $345,547,283  were  war  expenditure,  bringing 
the  total  war  cost  to  that  date  up  to  $905,372,481.  Ordinary 
expenditure  had  amounted  to  $203,000,000.  which,  in  accord  with 
the  financial  policy  announced  in  1916.  included  the  carrying 
charges  of  the  war  debt  and  all  ordinary  expenditure  apart  from 

?238,000.000,  a  surplus  of  $55,000,000  was  available  to  meet 
these  war  expenditures.     Minister  of  Finance  McLean  estimated 
hat  this,  together  with  the  money  secured  by  the  fourth  war 
loan,  would  finance  the  war  until  July,  1918. 

The  budget  for  the  new  year,  ending  March  31.  1919,  he  esti- 
mated  as  follows  : 

Expenditures  : 

Civil   budget    „ 

War  expenditures  $230,000,000 

Advances  to  Imperial  Governmeni '.'^'^\V.'.'.'.'.'.'.'.'.'.'.'.'.'.]"[[  Ss'oOo'oOO 

Total    — — '■ — 

$980,000,000 

Receipts : 

Revenue   

Advances  by  Great'  Britain  .■.■.■.■.■;.;.■.■.■.■ ^'SS'SS? 

Unexpended  balance  of  fourth  loan ::■.■.■.■.:; ; ; ; ; ; ; ; '_ ; '  SoS'oOO 

Total    -— — '■ — 

$700,000,000 

This  would  leave  a  deficit  of  $280,000,000  to  be  met  by  loans. 
Loans.  1917-18 

«^im  Sl^nlii'  ^'''  ^-^"^^  ^^'''^  '"  '^'  U"'*^d  States  a  loan  of 
$100,000,000  consisting  of  5  per  cent  two  year  notes  dated  July, 

1917    which  were  issued  to  meet  adverse  trade  balances  occa- 
sioned by  large  purchases  of  war  materials  here 

In  November  1917.  the  fourth  internal  war  loan  was  brought 
out.     It  differed  from  the  three  previous  ones  in  several  respects 
First,  the  rate  of  interest  was  increased  from  5  to  5.5  per  cent- 
the  bonds  were  issued  at  par  instead  of  a  discount;  the  investo,^ 
was  given  a  choice  of  three  maturities,  namely,  five,  ten  and 


CANADA 


49 


twenty  years ;  and  finally,  whether  as  a  result  of  better  organiza- 
tion or  other  causes,  the  number  of  subscribers  was  greatly  in- 
creased, reaching  the  record  total  of  820,035,  or  one  in  wery 
ten  of  the  total  population.  The  amount  asked  for  had  been 
placed  at  $150,000,000.  The  amount  subscribed  was  $419,289.- 
400.  of  which  approximately  $398,000,000  was  allotted. 

During  this  year  war  savings  certificates  were  ofifered.  Three 
experiments  were  made  in  the  denominations  in  which  these  were 
put  out.  The  first,  in  January,  1917,  placed  the  denominations  at 
$25,  $50.  and  $100,  but  as  this  was  found  beyond  the  reach  of  the 
average  small  saver,  they  were  reduced  in  August  to  a  $10  par 
which  was  sold  at  $8.60,  due  in  three  years  at  par.  Although 
the  receipts  from  this  denomination  (including  the  earlier  and 
higher  priced  certificates)  reached  about  $12,000,000  by  the  end 
of  the  fiscal  year,  they  were  brought  down  in  September,  1917. 
to  the  English  and  American  denomination  of  $5  par.  with  sup- 
plementary 25  cent  thrift  stamps. 

The  Dominion  also  offered  a  5  per  cent  three  year  Dominion 
debenture  stock  to  be  used  exclusively  for  the  purchase  of  war 
supplies,  in  multiples  of  $500.  By  December  31.  1917.  $10.- 
000.000  of  this  stock  had  been  placed.  This  was  withdrawn 
from  the  market  December  10,  1918,  the  total  outstanding  then 
being  $28,000,000. 

Tax.xtion.  1917-18 

A  substantial  decline  in  customs  revenue  was  anticipated,  but 
it  was  proposed  to  meet  this  by  extra  taxation,  including  an  in- 
creased business  tax,  a  new  income  tax.  taxes  on  light  beers,  to- 
bacco, cigars,  cigarettes,  and  coffee,  as  well  as  a  new  tax  of  10 
cents  a  pound  on  tea,  and  10  per. cent  on  motor  cars,  jewelry, 
moving  picture  films  and  phonographs.  The  business  profits  tax 
was  enlarged  by  bringing  within  its  scope  industries  capitalized 
from  $25,000  to  $50,000.  A  national  income  tax  was  introduced 
for  the  first  time  in  Canada  in  July,  1917.  Exemptions  were 
placed  at  $1.-500  for  unmarried  and  $3,000  for  married  persons. 
All  income  above  these  exemptions  bore  a  normal  tax  of  4  per 


« 


I'  ■ 


'I' 

1   I 


I 


50  DIRECT  AND  INDIRECT  COSTS  OK  THE  WAR 

cent.  Supertaxes  were  then  imposed  ranging  from  2  per  cent  on 
$6,000  to  25  per  cent  on  $100,000  and  over.  Corporations  and 
joint  stock  companies  were  not  subject  to  the  tax.  Later  in  the 
year,  these  exemptions  were  lowered  to  $1,000  for  unmarried  and 
$1,500  for  married  jjersons,  and  the  supertax  rates  on  incomes 
over  $50.0(X)  were  increased,  the  maximum  levy  being  50  per 
cent  on  incomes  over  $1,000,000.  This  tax  being  new.  no  esti- 
mate as  to  its  yield  was  made. 

l'-.\PEXDITURES.  1"^18-19 

The  total  expenditures  for  this  year  amounted  to  $684,476,306, 
of  which  $450,000,000  were  war  exjienditures,  bringing  total  war 
costs  on  March  31,  1919,  up  to  $1,355,000,000.  Ordinary  ex- 
pi  uliture  amounted  to  $234,476,306  am  revenues  to  $310,968,- 
1-4,  which,  in  accord  with  the  policy  announced,  left  a  surplus  of 
$76,492,000  to  apply  against  war  expenditure. 

Loans.  1918-19 

As  the  war  dragged  on  through  the  summer,  a  fifth  loan  be- 
came necessary,  .\ccordingly.  in  October,  1918,  the  fifth  internal 
war  loan  was  offere<l.  This  was  $300,000,000  in  amount,  and 
in  tunn  was  a  Sj-j  per  cent  fi\e-fifteen  year  bond  issued  at  par. 
The  subscriptions  to  this  loan  reached  a  total  of  $690,000,000, 
and  were  applied  for  by  1.080.000  subscriljers.  The  Dominion 
accepted  the  whole  amount. 

The  results  of  the  tive  internal  Canadian  war  loans  were  as 
follows : ' 

1st,  Nov.      2d.  Sept.  3d,  Mar.  4th,  Nov.  Sth, 

Record  of  Loan        22.1915        12.1916  12.1917  12,1917        Oct..  1918 

Amount   $50,000,000  $100,000,000  $150,000,000  $150,000,000  $300.000,00it 

Public   subscrip- 
tions      78.729..i00    151,444,800  200.768.000  419^89,000    690.000,000 

Bank    subscrip- 
tions      25,000.000      50,000.000  60,000.000     

Total 113.729,500    201.444.800    260,768.000    419289.000    690,000.000 

No.  subscribers..         24,862  34,526  40.800  820.035        1.080.000 

Interest,  per  cent                5  5  5  S.S                 5.5 

Maturity    Dec.  1,  1925  Oct.  1. 1931  Mar.  1. 1937  5-10-20yrs.    Oct..  1934 

Price    97.5  97.5  96  Par                  100 

Amount  accepted  100.000.000  100.000.000  150.000.000  398.000.000    690.000,000 

'  (""(impiled  from  Cniiadinn  AriHua!  Rnneu;  1917,  and  later  d.ita. 


CAKADA 


51 


The  costs  of  the  War  to  Canada  as  submitted  to  the  Repara- 
tions Commission  at  Paris  were  reported  to  have  been  estimated 
at  $1,500,000,000.  '  This  sum  would  seem  to  include  merely 
the  direct  money  outlay  and  interest  charges  on  the  war  debt,  as 
shown  in  the  war  expenditure  and  increased  civil  budget  which 
carried  the  interest  charges. 

The  actual  war  cost  to  Canada  is  shown  in  the  following  table 
of  expenditure  and  revenue  during  the  war  period : 


Fiscal  Vear 

1914-15 

1915-16 

1916-17 

1917-18 

1918-19 


Civil  E.xpendituro 
$182,162,034 
170,317,848 
176,478^88 
203,000,000 
234,476,306 


War  Expenditure 
$65,936,492 
169,384,654 
321,864,160 
345,574,000 
450,000,000 


Expenditures : 

Total  direct   war  expenditure 

Increase  in  civil  budget  for  five  years  over  normal  in  1914. . 


Revenue:! 
$133,073,482 
172,149,393 
232,601,294 
258,000,000 
310,968,124 

$1,352,759,306 
312,816,726 


Total $1,665,576,032 


This  was  met  by : 

Revenue : 

Excess  revenue  over  1914  normal  during  five  years 

Loans: 

Internal, 

1st.  November,  1915   $100,000,000 

2d,  September.  1916 100.000,000 

3d.  March,  1917  150,000,000 

4th,  November.  1917  398,000,000 

Sth,  October,  1918 *690,000.000 


.$265,792,193 


External,  in  United  States : 

March.  1915  $25,000,000 

August,  1915  45,000,000 

March.  1916  75,000.000 

July,  1917  100,000,000 


$1,438,000,000 


Redeemed 


$245,000,000 
.    50,000,000 


195.000.000 


$1,633,000,000     1,633,000.000 


Total  sum  raised  for  war  purposes  by  taxes  and  loans $1,898,792,193 

♦The  unexpected  aggregate  of  the  last  loan,  coming  after  the  armistice 
was  signed,  makes  Canada's  loan  account  much  greater  than  her  war  ex- 
penditure, thus  leaving  a  balance,  a  large  part  of  which  has  since  been  loaned 
to  the  European  countries  for  reconstruction  purposes. 

>  Renter  despatch  from  Paris  to  The  Wathit-.gtnn  Post,  March  21,  1919. 


I;'li 


1 
if   I 


AUSTRALIA 

The  agricultural  and  mercantile  classes  in  Australia  were  in  a 
pnispcnms  condition  when  the  war  brc^e  out,  IkU  the  industrial 
situation  was  less  sound.  The  Anancial  situation  of  the  govern- 
ment was  weak,  for  it  had  been  expending  alxnit  $100,000,000 
annually  on  public  works,  most  of  which  had  l)een  borrowed  in 
London.  Work  on  these  public  utilities  could  not  be  susiwnded 
\\  ithout  disaster  to  the  investment,  and  the  prospect  of  new  finan- 
cial Injrdens  due  to  war  caused  a  ccmference  tt)  l)e  held  by  the 
■«tatc  premiers  and  members  of  the  Federal  Ministry  and  of  the 
Op]M»sitii)n,  w'th  a  view  to  devising  policies  to  be  jnirsued.  Three 
distinct  bulwarks  were  planned  against  financial  contingencies: 
tirst,  there  was  to  be  an  expansion  of  the  currency;  second,  the 
Australian  notes  were  made  inconvertible  until  aftci  the  war, 
and  third,  the  eventual  declaraticm  of  a  moratorium.  The  ex- 
pansion of  the  currency  was  to  proceed  in  either  of  two  ways: 
(a)  the  Commonwealth  .should  suj>ply  the  states  with  paper 
money  against  a  dqiosit  of  25  per  cent  of  the  amount  borrowed 
in  gold  with  the  Commonwealth  Treasury  with  interest  at  4  per 
cent,  or  (b)  the  Commonwealth  should  advance  to  the  private 
banks  such  paper  money  as  they  might  require  in  case  their  gold 
reserve  fell  too  low,  such  notes  to  be  a  first  charge  upon  the  as- 
sets of  the  bank  and  to  be  secured  by  a  deposit  of  33  per  cent  at 
the  Treasury,  the  current  rate  of  interest  being  charged  for  such 
issue. 

KXPENDITURES,    1914-15 

The  Commonwealth  budget  was  presented  on  December  3, 
1^1  •< — about  six  months  after  the  fiscal  year  had  run — estimating 
expenditure  at  $188,000,000.  revenues  at  $108,000,000,  and  a 
deficit  of  $80,000,000.  Of  this,  $65,000,000  was  to  be  met  by 
loans,  and  $14,500,000  by  increased  taxation.  The  new  probate 
and  succession  duties  on  estates  over  $5,000  were  expected  to 


AUSTRALIA  53 

yield  $5,000,000;  the  increase  in  the  unimproved  land  tax  rate. 
$5,500,000.  and  revisions  in  the  taritf  on  stimulants  and  narcotics. 
$4,000,000.  These  taxes  were  to  go  into  effect  July  1  1915 
The  loans  were  to  be  received  from  '.he  British  Govetiiment! 
which  allocated  to  Australia  $*)0.000.000  in  advances  to  meet  war 
expenditure.  The  actual  operations  of  the  year  ending  June  30 
1915.  were  as  follows:  s  J     c  oo. 

Ordinary  expenditure  «ui  ^e^  . .. 

^"  -"'"'"'- :::::::::::::::::::::::::;:::::  iJJSa 

Revenue  $1S8.420,SM0 

80.239,680 

Deficit  met  by  loan, 7^^!^^ 

I^ANs,  1914-15 

During  this  year  the  total  war  expenditure  was  met  out  of  loans 
from  the  British  Government,  these  war  adv.inces  on  June  30 
1915,  amounting  to  $74,210,525. 

Expenditures,  1915-16 
The  financial  operations  for  this  year  were  as  follows : 

Expenditures,  ordinary  '  ._ 

War  expenditures  I%.197.780 

230,S37,1V5 

Revenue  ....  $326,734,975 
1S3.139.7I5 

Deficit  met  by  loans „,,      ' 

$173,595^60 

Loans,  1915-16 

The  Commonwealth  now  decided  to  probe  the  possibilities  of 
home  resources,  and  in  August,  1915,  the  fim  internal  loan  was 
offered,  the  amount  of  which  had  been  fixed  at  $100,000,000  and 
a  fim  mstalment  at  $25,000,000.     It  bore  4/.  per  cent,  was  ex- 

Zll'Z'aV'lT'  '"•  ^^  *"'  '^""^  *t  P"-  Subscriptions 
totaled  $66.94.  .200.  In  February,  1916,  the  second  internal  loan 
was  fluted  This  was  a  4/^  per  cent  bond,  of  which  $50,000,000 
was  offered,  but  the  subscriptions  amounted  to  double  that  sum. 


54 


DIRECT  AND  INDIRECT  COSTS  OF  THE  WAR 


being  $108,298,400.  all  of  which  was  accepted.  Both  loans  were 
redeemable  in  I"?  ooth  were  free  of  the  income  tax.     In 

view  of  the  hea\ii  graded  state  income  taxes  current  in  Aus- 
tralia, this  exemption  constituted  a  substantial  bonus  to  the  pur- 
chaser—indeed, it  was  estimated  that  a  4>^  per  cent  tax-free 
IxHid  was  the  equivalent  of  a  63/^  per  cent  bond  subject  to  taxa- 
tion. The  total  credit  operations  of  this  year  therefore  amounted 
to  $175,225,600. 


PI 


Taxation,  1915-16 

The  income  tax  imposed  in  1915  became  operative  during  this 
year.  The  tax  was  levied  at  rates  of  3d.  to  5s.  in  the  pound,  with 
exemption  on  incomes  under  $780.  This  was  supplementary  to 
the  income  tax  imposed  by  the  several  states,  so  that  an  aggregate 
Inirden  as  high  as  5s.  in  the  pound  was  laid  on  the  taxpayer.  Its 
actual  yield  during  this  year  was  $19,667,355. 

In  October,  1916,  the  Commonwealth  Treasurer  announced 
additional  focation,  estimated  to  yield  $41,665,000,  made  up  of 
a  tax  on  entertainments  expected  to  bring  in  $5,000,000  from 
January  1  when  it  went  into  effect ;  a  wartime  profits  tax,  esti- 
mated to  produce  $15,000,000,  of  which  $5,000,000  was  expected 
in  the  year  1915-16  and  $10,000,000  for  the  year  1916-17;  an 
increase  of  25  per  cent  in  the  income  tax,  calculated  to  produce 
an  additional  $1,000,000;  and  finally  a  levy  on  wealth  for  the 
capital  repatriation  fund,  to  yield  $16,665,000  on  the  first  instal- 
ment. The  total  capital  levy  was  to  be  $50,000,000  payable  in 
three  instalments,  and  was  a  tax  of  1>4  per  cent  on  all  estates, 
real  and  personal,  of  the  value  of  $2,500  and  over.  The  fund 
was  to  be  used  for  the  assistance  of  Australian  soldiers  and  their 
dependents. 

The  actual  revenue  receipts  for  the  fiscal  year  1915-16  were 
$153,811,080,  or  $41,000,000  in  excess  of  1914-15,  of  which 
$19,667,355  was  the  return  under  the  new  income  tax. 


australia  55 

Expenditures,  1916-17 
The  financial  operations  for  this  year  were  as  follows : 

Kxpenditure.  ordinary   «7^  lao  lai 

War  expenditure...' ::::::::::  ^i  i! ::::::  [^^SJh 

Revenue  $407,783,645 

'*"*^""'  170.175.865 

Deficit  to  be  met ~n^7m 

The  Commonwealth  debt,  which  reflected  the  growing  costs  of 
war.  stood  on  June  30.  1917.  at  $845,888,835.     In  December, 
1916.  the  second  interim  financial  statement  of  the  Common- 
wealth Treasurer  summarized  war  finance  to  that  date.     The 
budgets  of  the  separate  rtates  showed  a  slight  but  steady  increase 
owing  to  their  continued  e.xpenditure  on  public  works;  indeed,  the 
continuance  of  these  activities,  which  for  the  most  part  were  car- 
ried on  with  borrowed  money  secured  in  the  English  market  at 
rates  of  interest  somewhat  higher  than  the  war  loans,  introduced 
a  certain  element  of  competition  for  capital  which  in  other  coun- 
tnes  was  checked  by  the  restrictions  placed  upon  private  enter- 
prise.    Since  these  were  government  expenditures,  however,  and 
not  those  of  private  corporations,  they  could  not  so  easily  be  sus- 
pended, nor  indeed  was  it  desirable  to  halt  enterprises  which  were 
m  the  midst  of  construction.     The  conclusion  to  be  drawn  from 
this  situation  is  not  that  industrial  borrowing  on  the  port  of  the 
state  is  unwise  but  -that  it  necessarily  conflicts  with  borrowing 
for  war  purposes— in  other  words,  an  industrial  state  devotes  its 
means  and  energies  to  ends  diflferent  from  those  sought  by  a 
militaristic  state. 

For  the  first  three  years  of  war  Australia,  like  most  of  the 
belligerents,  had  followed  the  loan  policy  in  meeting  war  expen- 
ditur-s.  In  his  budget  speech  of  June,  1917,  Sir  John  Forest. 
Commonwealth  Treasurer,  stated  "It  is  clear  that  a  very  large 
additional  revenue  will  be  required,  limited.  I  hope,  by  a  consid- 
erable decrease  in  departmental  expenditures."  Even  in  far  off 
Australia  the  burden  of  the  war  was  now  being  keenly  felt,  and 


56 


li|l:i  (  I    AXI)  INDIRECT  COSTS  OK  THE  WAR 


i '    ■ 


tlic  expenditures  on  the  new  fe<leral  capital,  on  railway  construc- 
tion, and  other  piil)hc  works  were  curtailed  owing  to  inability  to 
ol)tain  funds  for  carrying  on  the  work  by  borrowing. 

LoA.Ns,  1916-17 
The  third  .\usiralian  loan  was  issued  in  July,  1916.  It  was  a 
-:  per  cent  Ikhk!  free  of  income  tax.  maturing  in  1925,  and,  like 
the  previous  loans,  it  was  issued  at  par.  While  the  result  was 
.satisfactory,  it  fell  short  of  the  high  exjiectations  entertained.  It 
was  hoped  that  the  subscriptions  might  amount  to  $125,000,000, 
hut  the  actual  result  was  $117,938,250.  M  the  same  time  that 
the  internal  loan  was  being  floated,  the  Commonwealth  was  issu- 
ing a  v. I  ix;r  cent  $20,000.0(X)  loan  in  London  at  par. 

Large  as  were  these  sums,  they  were  insufficient  to  meet  the 
estimated  expenditures  of  the  Commonwealth  for  the  fiscal  year 
1916-17.  and  accordingly  a  fourth  internal  loan  was  issued  in 
neceml)er,  1916.  This  was  a  4>^  per  cent  loan  for  $90,000,000 
issued  at  i>ar.  redeemable  in  1925.  Subscriptions  were  made  pay- 
able in  ten  monthly  instalments  beginning  in  February.  This 
was  done  to  avoid  a  repetition  of  the  accumulation  of  large 
amounts  of  cash  in  the  government  account  with  the  Common- 
wealth Bank  which  had  proved  excessive  in  the  case  of  the  third 
loan.  The  loan  was  free  of  the  income  tax  as  had  been  the  prior 
issues,  and  in  addition  the  bonds  were  made  free  of  the  stamp 
duty  while  bonds  and  inscribed  stock  were  made  acceptable  at 
par  in  pa> nicnt  of  Commonwealth  death  duties.  It  was  also  an- 
nounced that  the  new  loan  would  be  exempt  from  the  applica- 
tion ><{  tile  wealth  levy.  The  loan  was  oversubscribed  with  the 
hell)  "I  the  hanks  and  the  insurance  companies,  amounting  to 
$1(17,020,000. 

Tax.vtion,  1916-17 

Australias  record  in  the  matter  of  taxation  was  not  up  to  this 
time  a  happy  ouv-.  The  taxation  proposed  the  previous  year  had 
largely  failetl  of  enactment  or  collection.  The  proposed  wealth 
levy,  the  first  instalment  of  which  would  have  brought  in  $16,- 
665,000,  had  been  completely  dropped,  while  the  wartime  prc^ts 
tax,  modeled  after  the  similar  English  tax.  had  not  yet  become 


AUSTRALIA  57 

law  owing  to  modifications  required  to  adapt  it  to  Australian 
conditions.  The  entertainments  tax.  which  was  expected  to 
bnng  in  about  $3,000,000,  was  now  estimated  to  produce  only 
$500,000.  It  is  true  that  the  interest  on  the  war  debt  and  pen- 
sions were  being  met  out  of  increased  re\  enue.  but  up  to  this  time 
the  actual  costs  of  niilitar>-  and  naval  operations  liad  been  de- 
frayed entirely  by  borrowing. 

The  Commonwealth  revenues  for  the  fiscal  year  ending  June 
30,  1917,  were  as  follows: 

Income  'ax  «o  i-jo  j-- 

Landtax ^'Hf^^ 

Probate  and  succession .'.■.■ s'^«« 

Customs  revenue i i : ! i : ::: i::::: i! i:::;::::;  efm^ 

postoffice';:::::;;::;;:;;;;;;;;;;-; '^jj^^zs 

o'""  "■«'«"' :"":::::::::;::;::;::::::  ^SiSl 

Less  allocation  to  states ^'?&l 

Net  to  Commonwealth .$138,823,770 

The  need  of  economy  and  of  more  energetic  financial  meas- 
ures was  now  thoroughly  appreciated.  The  Commonwealth  an- 
nounced that  expenditure  upon  all  matters  not  directiy  re'  .ting 
to  war  should  be  reduced  to  the  lowest  possible  level;  that  a  war 
profits  tax  was  to  be  levied,  and  the  federal  income  tax  to  be 
mcreased.  At  the  same  time  the  issues  of  new  domestic  loans  and 
of  war  savmgs  certificates  were  to  be  pushed. 

This  program  seems  to  have  been  a  pious  wish  rather  than  a 
ix>hcy  to  be  energetically  pursued,  for  nothing  further  seems  to 
have  been  done  in  the  way  of  imposing  taxes.  On  March  27, 
1918.  the  Commonwealth  Prime  Minister,  Mr.  Hughes  made 
an  announcement  in  regard  to  federal  taxation  which  would  seem 
to  mdicate  a  complete  change  in  the  policy  of  financing  the  war. 
He  said :  "It  is  not  the  present  intention  of  the  Ministry  to  im- 
pose additional  taxation,  but.  of  course,  the  Ministn-  must  deal 
with  the  position  as  it  arises  from  titiie  to  tlvM.  When  the  new 
financial  statement  is  made  for  the  coming  year,  the  Treasurer 
will  face  the  facts  as  they  then  present  themselves  and  the  pro- 
posals of  the  Ministry  will  then  be  placed  before  Parliament." 


I  . 


58  dirkct  and  indirect  costs  of  the  war 

Expenditures,  1917-18 
The  estimates  for  this  year  were  as  follows : 

Expenditures   $620,388,935 

ut  which,  war  expenditure  was 438  500000 

Ordinary  expenditure  jlfij  88g935 

Estimated  revenues  $171,781  500 

New  loans   [[  4So!oOo!oOO 

By  May,  1918,  the  total  war  expenditure  of  the  Commonwealth 
had  reached  $840,000,000.  of  which  $740,831,70^  had  been 
charged  against  loans,  and  only  $98,187,320  agai  .  revenues, 
the  latter  being  principally  the  interest  charges  on  war  debts,  pen- 
sions, etc.,  as  carried  in  the  ordinary  budget. 

Loans,  1917-18 

In  pursuance  of  this  policy,  recourse  was  had  to  loans  to  meet 
the  expenditures  of  the  year.  The  fifth  war  loan  was  issued  in 
September,  1917.  This  was  for  $100,000,000  and  consisted  of  a 
41/'  per  cent  bond,  free  of  the  income  tax,  issued  at  par,  repay- 
r.ble  in  ten  years.  The  loan  was  slightly  oversubscribed,  sub- 
scriptions amounting  to  $106,068,900.  While  it  wa.  successful, 
it  was  less  so  than  the  three  previous  loans,  and  compared  with 
the  amount  offered,  it  was  not  nearly  so  great  a  success. 

In  addition,  war  savings  certificates  had  brought  in  $13,597,- 
370,  so  that  alte^ether  over  $515,000,000  had  thus  far  beai 
raised  by  internal  loans.  There  was  considerable  discussion  at 
the  time  of  the  fifth  loan  as  to  the  expediency  of  continuing  the 
exemption  fron^  income  tax  feature.  The  possibility  of  further 
increr^ses  in  the  income  tax  or  the  imposition  of  supertaxes  placed 
the  bondholders  in  a  privileged  position.  On  the  other  hand  it 
was  urged  that  if  further  loans  were  made  subject  to  the  income 
tax,  the  rate  of  interest  would  have  to  be  raised,  and  that  the 
extra  burden  involved  would  be  greater  than  the  amount  of 
revenue  secured  from  the  tax  on  the  holders  of  the  bonds.  On 
the  whole,  the  general  disposition  was  to  adhere  to  the  existing 
system,  especially  as  the  loans  already  issued  were  redeemable  in 
such  a  comparatively  short  time,  i.e.,  1925  and  1927. 


AUSTRALIA 


59 


In  February,  1918,  the  prospectus  for  the  sixth  war  loan  was 
issued,  subscriptions  to  which  closed  wi  April  10.  All  previous 
war  loans  had  been  issued  at  4>4  per  cent  free  of  the  income 
tax.  This  time  the  Commonwealth  decided  to  offer  two  forms— 
(a)  a  41/S  per  cent  tax-free  bond  the  principal  of  which  was  also 
exempt  frc»n  a  wealth  levy  if  imposed,  and  (b)  a  5  per  cent  b<md 
subject  to  federal  taxation.  Both  issues  were  to  be  free  of  state 
income  taxes.  As  the  Australian  federal  income  tax  was  steeply 
graded,  it  was  expected  that  the  Aj/z  per  cent  issue  would  appeal 
to  the  wealthier  investors,  while  the  less  affluent  who  would  not 
be  subject  to  the  income  tax  would  prefer  the  5  per  cent  issue. 
Holders  of  the  eariier  issues  were  offered  the  privilege  of  con- 
version into  the  new  5s  on  conditicm  that  they  subscribe  to  an 
equal  amount  of  the  new  loan.  The  total  amount  asked  by  the 
Commonwealth  was  $200,000,000,  but  when  the  subscription 
period  closed  on  .April  10  the  subscriptions  amounted  only  to 
$190,000,000,  so  an  extension  period  was  announced  for  two 
weeks.  The  final  subscriptions  amounted  to  $217,553,700,  of 
which  $32,635,000  represented  the  Ss  and  $181,625,650  the  4i^s. 
Large  as  was  this  loan— practically  double  any  prior  one— it 
was  sufficient  to  meet  growing  war  expenditures  for  only  six 
months.  These  were  increasing  at  a  progressive  rate,  and  were 
made  worse  by  the  inflation  which  was  taking  place  in  Australia, 
as  well  as  in  Europe. 

The  seventh  war  loan,  subscriptions  for  which  closed  October 
15,  1918.  was  again  for  $200,000,000.  This  differed  from  the 
other  ones  in  several  respects.  The  rate  of  interest  was  fixed  at 
5  per  cent  and  the  bonds  were  made  subject  to  Commonwealth 
taxation.  The  loan  was  repayable  in  live  years,  which  was  a 
shorter  currency  than  any  previous  loan.  As  in  the  case  of  the 
sixth  isstje,  bonks  arranged  to  make  advances  to  subscribers  at  4 
per  cent  up  to  eighteen  months.  When  the  subscriptions  dosed' 
about  $185,000,000  only  had  been  applied  for,  so  an  extension 
of  two  weeks  was  made,  and  this  time  there  was  a  threat  of 
compulsion.  When  the  loan  was  finally  closed,  subscripticwis 
amounted  to  $217,116,375. 


f.0 


I>IRK<   I   AND  INDIRECT  (  OSTS  OF  THK  WAR 


I  he  threat  of  compulsion  alluded  to  consisted  of  a  so-called 
compulsion  bill  which  was  introduced  into  Parliament  in  October. 
1918.  According  to  it  the  Commissioner  of  Taxation  was  em- 
powered to  require  subscriptions  up  to  an  amount  not  exceeding 
SIX  times  he  yearly  income  tax.  In  case  of  refusal  to  subscribe, 
a  penalty  of  twice  the  yearly  income  tax  was  prescribed.  The 
proposition  failed  of  enactment  into  law 

If  to  the  loans  there  Ije  added  war  savings  certificates  issued 
to  June  30.  1918,  anwuming  to  $22,676,795.  the  total  loans 
raised  in  .\ustralia  for  war  purposes  amounted  to  $961,205  820 
In  addition  to  the  internal  debt  there  was  also  owing  to  the 
British  G<nemment  $247,000,000  incurred  for  war  purpose^ 

In  intHKlucing  the  1919-20  budget,  the  Commonwealth  Treas- 
urer summarized  .Xustralia's  war  finance  as  follows : 


COST  Ol-  THE  U.\R  TO  .\USTR.\L1.V.  AND  HOW   MET.  1914-1919 

I'eriod 

1914-15 

191.'U16 


191t>-17 

1917-18 

191g-19  (estimate;. 


kcvenuo 

$3,201,085 
18.891,890 
42.136.645 
59.281,175 
105,648,010 


Loati6 
$72455,590 
187,1 17A30 
265,571,185 
274,430,575 
394,574,045 


Toul 
$75,556,675 
206.009,730 
307,707,830 
333,711,750 
500,022,055 


.Amount 


$229,168,805  $1,194,049^25  $1.423,208,(M0 

The  following  table  itemizes  the  Australian  loans: 

rorm 
Intebn'al: 
Ut-.\ugu»t.   1915   ««;<«7inn 

3d-July,    1916   ??^1S 

Sth-September.    1917    K'iS 

6tli-Februarj,  1918:  106,068,900 

t'lr^nt"' «'>«S,6S0 

7th-oc,ober.  1918 ..:::::: i!: ::::::::::::::::::;:::;:;::::;  j?^^ 

War  saviiiRs  certificates ^^'TM"^ 


EXTEKNM.:  Great  Britain   1$7,S 

War  cxpoiiditures  raised  by  revenue ''"^"lesliros 


$1,437,418,680 


NEW  ZEALAND 

Xew  Zealan.I  was  in  a  favorable  condition  at  the  declaration 
of  war.  as  she  had  just  finished  marketing  her  produce  at  very 
high  prices,  and  liad  a  good  proportion  of  the  surplus  still  in 
hand.  Measures  were  taken  to  protect  the  banks  and  the  gov- 
ernment. The  export  of  gold  was  prohibited  and  a  limited  mora- 
torium applying  lu  mortgages  was  provided  for.  Bank  notes 
were  made  legal  tender,  and  depositors  in  the  post  office  savings 
iKmks  were  required  to  give  seven  days'  notice  of  all  withdrawals 
e.xceeding  $10. 

The  war  at  first  brought  to  Xew  Zealand  prosperity  rather 
than  financial  burdens.  Wool  and  frozen  meat.  New  Zealand's 
two  most  important  exports,  brought  record  prices,  so  that  large 
profits  were  gained  by  producers  of  these  commodities.  The 
gains  thus  retained  far  outweighed  the  war  expenditures  of  the 
government.  For  the  fiscal  year  ending  March  31.  1915  New 
Zealand  spent  $13,750,000  on  the  war.  For  the  following  fiscal 
year  1916-17,  it  was  estimated  that  additional  revenues  of  $10,- 
000,000  would  be  required  to  meet  extraordinary  war  expendi- 
tures, and  to  pro\  ide  this  it  was  proposed  to  increase  the  land  and 
mcome  taxes,  the  post  and  telegraph  rates,  railway  rates,  customs 
duties,  beer  duties,  and  probate  and  succession  dues  and  stamp 
tax.  An  alteration  was  also  made  in  the  scale  of  the  gra(  uated 
income  tax. 

The  budget  for  the  next  fiscal  year.  1916-17,  proposed  an  in- 
crease in  the  incwne  tax  of  5  per  cent  on  incomes  earned  during 
the  previous  year  from  all  sources,  exclusive  of  war  profits.  By 
this  horizontal  increase  a  relatively  heavier  burden  was  placed  on 
small  incomes.  .\t  the  same  time  the  minimum  exemption  was 
lowered  from  $2,500  to  $1 .500.  The  excess  profits  tax  was  fixed 
at  45  per  cent  of  the  excess  profits  made  during  the  previous  year, 
either  from  business  or  directly  from  primary  products.  These 
profits  were  ascertained  in  the  same  way  as  the  British  tax  by 


i 


''-  niRKt  T  ANT)  INOtRKCT  COSTS  OK  THE  WAR 

tukinp  till-  average  profit  for  tlie  three  years  prior  to  the  war  as 
tlic  Iwsis.      Taxation   was  now  iini>ose(l  on  a  heavy  scale,  the 
total  <!irect  an.l  indirect  taxes  collected  during  the  year  1916-17 
amounting  to  $53.5<H).535  as  conii>arcd  with  $30,000,000  for  the 
fiscal  year  1914-15.  or  an  increase  of  67  per  cent.     The  main 
source  of  this  additional  revenue  in  New  Zealand,  as  in  all  other 
countries  which  made  a  vigorous  resort  to  taxation,  was  the  in- 
come tax  and  the  special  war  tax  on  incomes.     This  was  an  addi- 
tion of  .^0  per  cent  to  the  schedule  rates  of  the  regular  income 
tax.      riie  ta.\  on  excess  profits  was  found  very  difficult  to  ad- 
just in  a  young  and  rapidly  deveh.ping  countrv.  and  it  was  there- 
fore dropped,  the  reason  given  being  that  it  was  not  sufficiently 
lucrative.     The  r>pponents  of  the  tax  claimed  that  an  80  per  cent 
war  profits  tax  would  have  been  less  onerous  than  a  45  per  cent 
excess  profits  tax.'     The  total  receipts   from  taxation  of  the 
Dominion  Government  during  the  four  years  of  war  were  as 
follow  s : 

Fiscal  Near  t      ,, 

\g\i  $29,404,055 

9  7  37.174.225 

go  53.559,535 

62.284.g00 

The  first  war  loan  was  issued  on  September  1.  1916.  This 
was  a  4' :.  per  cent  bond  issued  at  par,  redeemable  in  15  and  pay- 
able in  25  years,  free  of  the  income  tax.  The  total  amount  allot- 
ted against  ca.sh  suljscriptions  was  $38,932,000.  A  second  loan. 
Hoate.l  in  .September.  1917.  issued  at  par.  was  a  4>S  per  cent 
twenty-one  year  lx>nd  free  of  the  income  tax.  The  total  sub- 
sorijrtions  were  $58,398,000. 

.\n  unique  feature  of  the  New  Zealand  loans  was  that  of  com- 
pulsor>  subscription.  .Mthotigh  this  was  discussed  elsewhere,  it 
was  not  put  into  practice  in  any  other  belligerent  country.  The 
law  providing  for  it  is  so  interesting  that  it  is  quoted  in  full : 

Ta.\|.a>vrs  whoM'  taxabU-  income  for  the  year  cndinjr  March  31.  1916,  was 
i..t   less   than   £700  are   required   to   stihscrihc   to  the   loan   authorized   to  he 
'  Round  Table.  Deccmhcr.  1917. 


NEW  ZEALAND 


63 


raised  by  the  War  Purposes  Loan  Act  of  1917  to  an  amount  equal  to  three 
times  the  total  amount  of  land  tax  and  income  tax  (exclusive  of  excess 
profits  duty)  for  which  he  was  liable  under  the  Finance  Act,  1916. 

If,  however,  any  Uxpayer  to  whom  this  section  relates  has  subscribed  to 
the  loan  authorized  to  be  raised  by  Section  35  of  the  Finance  Act.  1916,  an 
amount  exceedinR  one  and  a  half  times  the  amount  of  tax  for  which  lie  was 
liable,  the  amount  so  contributed  by  him  in  excess  will  be  deducted  from 
the  amount  which  he  is  obliged  under  this  section  to  subscribe  to  the  War 
Purposes  Loan,  and  his  obligation  to  subscribe  to  that  loan  will  be  modified 
accordingly. 

The  third  war  loan,  which  was  issued  in  .\piHI.  1918,  diflfercfi 
from  the  two  previous  ones  in  that  it  was  put  out  in  two  forms : 
(a)  a  4  per  cent  twenty  year  bond  free  of  income  tax  issued  at 
(>ar.  and  (h)  a  5  per  cent  ten  year  post  office  war  loan  stock  sub- 
ject to  the  income  tax.     As  the  latter  was  designed  for  the  small 
investor  who  would  not  pay  an  income  tax,  the  amount  which 
could  be  subscribed  by  any  one  person  was  limited  to  $2,500.     A 
novel  feature  of  the  prospectus  of  this  loan  was  the  plain  refer- 
ence to  compulsory  subscriptions,  machinery  for  which  had  been 
provided  during  the  previous  year.  'The  prospectus  stated,  "It" 
is  confidently  anticipated  that  the  full  amount  of  $47,500,000  will 
\ie  voluntarily  subscribed,  but  should  there  be  any  deficiency  it , 
will  be  necessary  to  raise  the  amount  of  such  deficiency  by  com-y 
pulsory  levy^^    The  total  subscriptions  amounted  to  $42,500,000'^ 
against  th«  required  $47,500,000.  and  consequently  the  compul-  i 
sor>'  subscriptions  were  enforced  where  necessarj'.^  The  law  was* 
further  strengthenetl  by  authorizing  the  Commissioner  of  Taxes 
to  call  upon  a  person  to  subscribe  to  a  maximum  of  six  times  the 
yearly  average  of  his  land  and  income  tax   (inclusive  of  the 
siiecial  war  tax,  but  exclusive  of  excess  profits  tax )  for  the  three 
years  ending  March  31,  1918. 

In  addition  to  the  internal  loans,  war  savings  certificates  were 
issued,  and  over  $50,000,000  sold  during  1917.  Five  per  cent 
bonds  were  also  sold  in  Great  Britain.  Altogether  during  the 
four  years  of  war.  loans  were  raised  for  war  purposes  to  an 
amount  of  $318,119,350,  of  which  about  two-thirds  were  raised 
at  hc.ne  and  the  other  third  obtained  in  Great  Britain.     The  pub- 


I 


04  niKKl  r  ANK  IXniKKCT  COSTS  Ol"  THE  WAR 

lie  debt  which  on  March  M,  1914.  had  stood  at  $459,449,175 
rose  to  $776,568,525  at  the  end  of  1918. 

The  growth  of  civil  ex|K;nditures,  revenues  and  loans  during 
the  tivc  fiscal  years  cndiii!;  March  31,  l'M8.  is  shown  in  the 
following  table : ' 

\'car  ilxiK'tulitures  Revenues                   Loans 

1914 $59,129,320  $61,148,305  

1915 (il.«99,015  62ZS9,72S  $24,773,100 

1916 02,465,535  72.550,685                46,564390 

1917 70,293,850  91,837,735                98,075.410 

1918 SO.413,510  86,314.000  123,750,000 

The  actual  war  expenditure  of  New  Zealand  down  to  Deccm- 
lier  31,  1918,  amounted  tu  S378.750.000.  = 

At  the  same  time  that  loans  were  being  resorted  tr  taxes  were 
l>eing  increased  at  a  rapid  rate,  having  practically  doubled  during 
the  four  years  of  the  war.  Indeed,  the  receipts  from  taxation 
were  so  large  in  1918  that  Sir  Joseph  Ward,  the  Minister  of 
Finance,  announced  that  there  was  no  need  to  impose  any  further 
taxation,  and  expressed  his  opinion  that  after  the  war  New  Zea- 
land would  be  the  lightest  taxed  countrj-  on  account  of  war  ex- 
penditure in  the  British  Empire. 

^  Round  Tabli,  December.   1917. 

"Economist  (London),  May  17,  1919,  p.  801,  statement  of  Under  Secretary 
of  State  for  the  Colonies  on  the  floor  of  the  House  of  Commons  in  reply  to 
Sir  J.  Norton  Griffiths. 


1    1 


INDIA 

At  the  outbreak  of  the  war  India  was  in  a  relatively  strong 
financial  fxisition.  Crops  were  on  the  whole  satisfactory,  and 
the  export  trade  was  good.  When,  however,  it  became  apparent 
that  Great  Britain  would  be  involved  in  hostilities,  this  fact  was 
rellectecl  in  Indian  exchange.  Steps  were  therefore  taken  by  the 
Indian  Government  to  support  the  exchange  and  to  prevent  the 
<lissipation  of  the  gold  stock  held  by  the  government.  Indian 
trade  was  profoundly  aflfected,  as  a  large  proportion  of  it  had 
formerly  been  with  the  Central  Powers,  especially  for  cotton, 
jute,  rice,  and  cocoanut  products. 

When  the  financial  statement  of  the  government  for  the  year 
ending  March  31,  1915,  was  published,  it  showed  a  great  falling 
oflf  in  Indian  revenues.  This  was  sufficient,  in  spite  of  economies 
in  expenditure,  to  turn  an  estimated  surplus  of  $6,280,000  into 
a  deficit  of  $13,979,000.  In  the  budget  for  1915-16  the  expen- 
ditures upon  civil  works,  especially  railways,  were  cut  down  by 
over  $5,000,000  and  military  services  by  over  $2,500,000.  This 
was  effected  by  transferring  a  part  of  the  expenditures  of  this 
character  to  the  imperial  account,  but  in  spite  of  this,  a  deficit  of 
$14,785,500  was  estimated  in  the  imperial  budget,  to  which 
should  be  added  a  further  defi  it  of  $5,305,000  in  the  provincial 
budget. 

Like  most  of  the  countries  which  produce  raw  materials,  India 
reaiied  a  good  deal  of  prosperity  from  the  war  through  high 
prices  for  an  increased  output  of  its  products,  thus  enabling  it  to 
rerluce  its  external  indebtedness  by  buying  back  securities  from 
its  creditors.  .As  a  result  of  these  improved  conditions,  the  deficit 
at  the  end  of  the  year  turned  out  to  be  but  $8,971,000. 

The  budget  for  the  year  1916-17  estimated  a  surplus  of  $4,- 
128.500.  due  to  additional  taxation  of  $18,250,000.  almost  two- 
thirds  of  which  was  expected  to  come  from  increases  in  customs 
duties.     Extra  revenue  from  the  salt  tax  was  expected  to  bring 


(l«l 


MKKCT  AND  IXDIRECT  COSTS  OK  THE  W  \K 


in  S.?.(>00,0(K).  while  increases  in  the  inccwie  tax  were  estimated 
t..  yield  $4,500,000. 

The  pr«>si»erity  of  India  was  now  so  great  and  the  prospects  of 
re\  enue  so  brijfht  that  the  government  was  able  to  offer  a  truly 
niunirtcent  gift  to  the  British  riovemment.  India  proposed  to 
contrilnite  $500,000,000  to  the  cost  of  the  war  by  (a)  raising  a 
domestic  loan  of  as  large  an  amount  as  possible,  and  transferring 
the  proceeds  to  the  British  Government  ind  (b)  assuming  rc- 
s|H>nsibility  for  the  debt  charges  on  the  amount  of  the  latest  Brit- 
ish loan  equivalent  to  the  difference  between  the  proceeds  of  the 
Indian  Ixin  and  $5(X).000,(XK).  This  was  the  answer  made  b>- 
India  to  the  (rerman  allegation  of  disloyalty  and  insurrection. 

In  accordance  w  ith  this  promise,  an  Indian  war  loan  was  issued 
in  March.  1917.  the  whole  of  the  cash  subscriptions  from  which 
were  to  be  given  to  the  British  Government  for  the  prosecution 
of  the  war.  The  loan  was  issued  in  four  different  forms:  (1) 
a  5  \KT  cent  loan.  l')i<)-1947  :  (2)  a  3j/.  per  cent  war  bond  due  in 
1920;  (3)  a  5'.;  \ieT  cent  war  bond  due  in  1922,  and  (4)  post 
office  five  year  cash  cettificates  similar  to  the  British  war  savings 
certificates.  The  5  per  cent  loan  was  issued  at  95,  and  the  SYiS 
at  par.  Subscri|)tions  to  the  loan  amounted  to  $175,000,000.  A 
year  later,  in  June,  1918,  India  announced  a  second  loan  consist- 
ing of  5^  per  cent  bonds  at  par,  free  of  the  income  tax  but  not 
of  the  supertax.  These  bonds  were  issued  for  periods  of  three, 
five,  seven,  and  ten  years.  The  subscrii)tions  from  this  loan  were 
also  to  be  given  to  the  Imperial  Government  as  a  part  of  ■'■•" 
Indian  contribution  of  $500,000,000  toward  the  cost  of  the  war. 
The  estimated  receipts  from  this  second  loan  were  placed  at 
$100,000,000. 

The  budget  for  1917-18  estimated  expenditures  considerably 
higher  than  any  which  had  yet  obtained,  but  the  revenues  were 
correspondingly  increased,  so  that  a  small  surplus  of  $190,000 
was  estimated.  This  proved  to  be  a  very  conservative,  not  to 
say  pessimistic,  estimation  of  the  year's  financial  operations,  for 
the  year  closed  with  an  actual  surplus  of  $40,405,000 — nearly 
half  of  the  extra  surplus  being  due  to  an  excess  of  net  profits  on 


INDIA  67 

ihc  railways,  which  was  brought  about  in  part  by  the  impossi- 
bility of  making  the  usual  provision  for  renewals  and  upkeep. 
In  addition  to  the  gift  of  $500,000,000.  of  which  $275,000,000 
had  been  paid  over  to  the  Imperial  Government,  and  the  assump- 
tion  of  tlie  debt  charge  on  the  remaining  $225,000,000  by  the  In- 
dian Government,  there  was  paid  out  of  re\'enue  the  ordinarj- 
cost  of  the  troops  from  India  on  active  service  in  the  pronecution 
of  the  wat.  which  it  was  estimated  would  amount  to  about  %77,- 
500.000  by  the  end  of  the  fiscal  year  1917-18.  and  therefore 
ab<nit  $100,000,000  by  the  close  of  the  war.  The  following 
sums  of  money  were  raised  and  given  to  the  British  Government 
for  the  designated  war  purposes; 

Maharaja  of  Nabha,  for  war  purposrs SIOOOOO 

Nepal  Govrrnment,  for  war  purposes 100000 

DarblianRa,  for  arropUwrs  !!.'.'.'.'!'  6SWn 

Gaikwar  of  Baroda.  for  war  expenditure 33000 

Rajputana.  aeroplanes  attrl  machine  guns 150000 

Maharajah  of  Mysore   !!!!!!!'  33Oj0O0 

Nizam  of  Hyderabad,  to  ligiit  submarine  peril  ..................  500 000 

Cost  of  troops,  estimated.     iS.SoioOO 

Gift  of  Government  of  India 500000000 

Total  cost  of  war  to  India llSOl J79000 


UNION  OF  SOUTH  AFRICA 

The  Union  f^arlianient,  like  that  of  other  British  Colonies, 
undertook  certain  military  responsibiUt'^s  in  connection  with  the 
war.  In  Septcmlwr.  1^)14.  $10,000,000  was  voted  by  Parliament 
for  war  expenditure,  which  prove<l  wholly  inadequate  as  expen- 
<liture  to  March.  1915.  amounted  to  $43,750,000.  The  gold 
mining  industry  was  not  disturbed  by  war,  but  the  diamond 
mines  closed  down  in  August,  and  the  dislocation  due  to  this  and 
to  the  war  and  rebellion  greatly  reduced  revenue  from  customs, 
so  that  the  year  1914-15  saw  a  deficit  of  $10,960,000  between 
ordinary  revenue  and  expenditure,  which  was  charged  to  the  loan 
account,  involving  an  increased  annual  interest  charge  of  about 
$460,000. 

It  was  proposed  to  meet  the  1915-16  estimated  deficit  of  $14,- 
OOO.IXX)  by  increases  in  the  customs  of  5  per  cent  ad  valorem  on 
coffee,  paraffin,  tea,  boots  and  shoes,  and  playing  cards,  and  in 
the  excise  on  sugar  and  beer;  an  increase  in  the  income  tax  after 
a  reduction  of  exemption  from  $5.(XX)  to  $1,500,  grading  up  to 
2s.  in  the  pound  on  incomes  in  excess  of  $100,000  and  a  general 
increase  from  6<l.  to  Is.  in  the  pound;  a  special  levy  of  5  per  cent 
additiimal  on  gold  mines ;  and  other  appropriations  of  funds  from 
sale  of  mining  rights,  etc.  The  new  loan  estimate  for  war  ex- 
penditure for  1915-16  was  $36,250,000.  or  a  total  of  $90,000,000 
for  the  two  years,  to  cover  the  deficit  in  the  first  year  appropria- 
tion. During  the  year  1915.  however,  the  sudden  prosperity  of 
munition  making  nations,  and  their  indulgence  in  such  luxuries 
as  diamonds,  gold  ornaments,  and  ostrich  feathers.  South  Africa's 
si)ecialties.  led  to  an  era  of  great  prosperity,  and  increased  cus- 
t(»ms  and  tax  revenues  s<>  that  the  actual  result  of  the  finances 
showed,  instead  <>f  the  estimated  deficit  of  $2,920,000.  a  surplus 
of  $1,335,(XK).  This  was  brought  aliout  by  the  government 
taking  over,  as  jmrt  of  its  receipts,  the  so-called  "bcwaarplaat- 
.wn" — a  incth(Kl  often  resorted  to  to  balance  South  African 


UNION    or   SOUTH    AFRICA 


69 


budgets.  This  term  applies  to  the  moneys  obtained  by  the  gov- 
eniment  from  the  sale  or  leasing  of  certain  mineral  rights  under- 
lying areas  the  surface  of  which  is  used  for  dumping  and  stor- 
age, under  the  gold  law  of  1908,  which  permitted  the  government 
so  to  do,  requiring  it  to  hold  such  rentals  or  sale  moneys  as  a 
se|>arate  fund  until  ownership  thereto  could  be  determined — a 
matter  which  for  political  reasons  seems  to  be  delayed. 

In  the  1916^17  Inidgct,  revenue  (exclusive  of  the  bewaarplaat- 
sen.  which  was  estimated  at  $940,000)  was  estimated  at  $81,- 
660,000  and  expenditure  at  $89,355,000,  which  left  a  deficit  of 
$7,665,000.  which  was  to  be  made  good  by  borrowing  from  the 
bniKutrplaatsen  and  increased  taxation  in  the  form  of  a  grad- 
uated supertax  ranging  from  Is.  to  3s.  in  the  pound  on  personal 
incomes  in  excess  of  $12,500;  increased  excise  and  customs  duties 
on  spirits,  and  an  export  duty  on  diamonds,  both  of  which  showed 
heavy  increases  in  the  actual  returns  of  the  year.  Instead  of  a 
deficit,  an  actual  surplus  of  $2,000,000  was  realized. 

The  whole  of  the  war  expenditu. .-  in  South  Africa  was  charged 
to  the  loan  account,  the  ordinary  budget  carrying  only  the  interest 
charges  on  the  newly  created  debt,  and  making  a  "contribution" 
to  the  loan  account  from  revenue  equal  to  the  normal  expendi- 
ture on  defense  purposes,  which  was  put  down  for  1916-17  as 
$6,500,000. 

The  1917-18  estimates  placed  revenue  at  $90,870,000  and  ex- 
penditure at  $92,545,000,  tlie  deficit  to  be  met  by  an  excess  profits 
tax  of  25  per  cent  on  all  excess  profits  earned  after  July  1,  1916, 
modeled  on  the  British  plan  of  determining  them.  An  extension 
of  the  diamond  export  tax  was  proposed,  and  the  income  tax  was 
reorganized,  from  which  slight  additions  were  expected.  The 
increase  in  expenditure  was  due,  of  course,  to  the  growing  in- 
terest charges  on  the  loan  account  from  which  war  expenditure 
was  being  financed.  On  March  31,  1917,  war  expenditure 
totaled  $115,000,000  as  found  in  the  loan,  and  $16,000,000  as 
shown  in  the  revenue  accounts. 

The  total  money  cost  of  the  war  to  the  South  African  Union 
has  been  estimated  at  $300,000,000. 


FRANCE 

The  tinancial  situation  in  France  was  unsatisfactory  at  the 
outl)reak  of  the  war.  The  finances  had  been  in  prcxress  of  recon- 
>tructi<>n  owing  to  new  expenditures  brought  on  by  the  settle- 
ment of  the  expe-^ses  in  Morocco,  the  introduction  of  the  three 
yviir  service  law.  and  the  increase  in  the  navy. '  The  budget 
\(.ted  by  the  Chaiiil)cr  in  1914  of  $1,054,600,000  did  not  suffice 
to  cover  these  new  appropriations,  and  a  new  loan  was  accord- 
ingly authorized  by  act  of  June  30,  1914.  to  be  issued  on  July  7, 
for  $180,000,000  nominal  (net  $161,000,000)  of  3^  per  cent 
twenty-five  year  bonds  issued  at  91.  By  the  issue  of  a  bond  re- 
deemable in  twenty-five  years,  France  seemed  to  have  abandoned 
the  jwlicy  which  she  had  followed  since  1878  of  creating  only 
|)erpetual  debts.  But  while  this  was  an  improvement  over  her 
former  practice,  it  was  a  mistake  to  issue  such  a  long  term  bond 
to  meet  expenditures  the  benefits  of  which  would  endure  for  a 
much  shorter  period.  According  to  French  custom,  arrange- 
ments were  made  by  which  the  bonds  could  be  paid  for  in  four 
instalments,  the  third  of  which  fell  due  on  September  16  and  the 
fourth  on  Novemlier  !6.  At  the  beginning  of  August  only  $76,- 
000.000  had  been  paid  in. '  .Mthough  the  loan  had  been  thirty- 
seven  times  oversubscribed,  it  was  all  but  impossible  for  the 
subscribers  to  nveet  the  third  and  fourth  payments  after  the  decla- 
lation  of  war  on  .August  1,  and  the  consequent  disorganization  of 
the  markets.  The  loan  was  for  the  most  part  in  the  hands  of 
the  great  credit  establishments  or  of  persons  who  could  not  seture 
the  necessar>'  funds  under  the  circumstances.  To  meet  this  diffi- 
culty the  two  remaining  instalments  were  divided  into  four 
periods:  SejXember  16-30.  fVtober  16-31.  November  16-30, 
and  December  16-31.  Furthermore,  the  state  promised  sub- 
scribers that  any  mori       .hich  they  held  in  the  3' ..  per  cent  loan 

^  Eionnmitt  (London),  .^URUSt  4,  1917,  p.  l.SS. 

-'  Gaston  fezc,  "L'Empnint  Fran^ais  <lc  900  Millions  <lc  Francs,"  Revw  de 
s.iVi;,.-  {-t  dc  IJgislatiiin  finanii.^rc.  Jnly-December,  1914.  XII,  4SS. 


J 


FRANCE  71 

wiiuld  l>e  acce)>ted  in  future  loans  at  91,  the  price  of  issue. 
Arrangements  were  also  made  with  the  Bank  of  France  to  lend 
to  subscribers  the  money  necessarj-  for  the  payment  of  instal- 
ments as  they  fell  due. '  Further  payments  on  this  loan  were 
made  as  follows : ' 

August.   1914   18,444,600 

September  12,038,200 

October    9.206,200 

-Vovember   4.485.600 

D-ccmber    9.772.600 

IVar.ce,  like  England,  suffered  a  total  collapsv  in  credit  in  the 
(lays  prece<ling  the  war.  .\s  early  as  July  J3  there  was  the  be- 
j^l'nning  of  a  panic.  This  was  followed  by  a  rush  to  sell  securi- 
ties, and  on  July  30  the  Paris  coutissc  or  "curb"  market  was 
closed.  The  stock  market  in  a  countr>-  like  I'Vance  which  deals 
so  largely  in  foreign  securities  is  unusually  sensitive.  There  was 
a  great  deal  of  liquidation  on  the  bourse.  To  avoid  complete 
demoralization  of  the  stock  market,  only  the  Tarcjuet  on  which 
selected  securities  are  dealt  in  remained  open,  and  that  under 
strict  government  supervision.  When  the  government  removeil 
fn.ni  Paris  to  Bordeaux  on  September  2,  the  Parquet  also  closed. 
The  bourse  was  not  again  opened  until  Dec«nber  7,  1914,  and 
then  for  cash  transactions  only.  A  limited  morat«jrium  was  pro- 
claimed on  August  6,  applying  only  to  securities  subscribed  be- 
fore August  4,  which  postponed  payment  until  September  1 .  On 
.\ugust  11a  more  general  moratorium  prescribed  practically  com- 
plete suspension  during  the  period  of  hostilities  of  all  "civil, 
commercial  and  administrative  prescriptions  and  preemption*;."  " 
A  decree  of  the  government  was  also  issued  limiting  to  $50  th<! 
aniotmt  w^ich  depositors  could  withdraw  from  banks;  in  aildi- 
iKH)  they  could  demand  only  5  per  cent  of  any  sum  above  this 
S.^O.  an  exception  being  made  in  the  case  of  employers  needing 

'  Journal  des  Economistcs.  Novt:iiber,  1914,  p.  182.    This  loan  was  rcft-rred 
ii«  as   (■<•  SfalhcHrcux  cmprunl. 
-Revue  de  Science  el  de  Legislation  ftnanciire,  Xlll,  4.  682. 
^  Eennomisl  (I.oniloii).  August  4,  1914,  p.  352. 


72 


DIKKCT  AND  INDIKKCT  COSTS  OF  THE  WAR 


money  for  payment  of  wages  to  industrial  and  commercial  em- 
ployes. The  I'rench  mercliani  makes  at  Ijest  but  small  use  of 
clitcks.  and  his  distrust  of  tliis  means  of  jKiymeiit  was  i)robably 
increased  now  by  his  inability  to  use  his  Ixink  deposit,  .\nother 
result  of  the  |.anic  and  disorganized  situation  was  the  disap- 
|)earance  of  metallic  nnmey  which  the  jjeople  began  to  hoard. 
.\II  of  these  lactors  made  it  practically  impossible  for  subscribers 
to  the  prewar  loan  to  meet  their  subscriptions. 

in  order  to  meet  the  deficit  in  the  budget  of  1914,  which  was 
estimated  at  $480,000,000,  the  Chamber  had  also  voted  an  in- 
come tax  Init  it  was  not  to  become  operative  until  January  1,  1915. 
.\ny  further  immediate  resort  to  taxation  as  a  method  of  war 
finance  was  rendered  difficult,  if  not  impossible,  as  a  result  of  the 
invasion  of  France  by  Germany  and  the  seizure  of  the  richest 
industrial  section  of  the  northern  part  of  that  country.  As  the 
existence  of  the  unpaid  loan  of  July  made  a  new  loan  difficult, 
and  the  loss  of  territory  and  falling  off  of  revenue  made  new 
taxes  impossible,  resort  was  had  at  the  beginning  to  the  financial 
assistance  of  the  Bank  of  France. 


Banking  and  Ci-rrencv.  1914 

The  Bank  of  I'Vance  stands  in  close  relation  to  the  govern- 
ment, and  has,  since  the  time  of  Xajxileon  1,  by  whom  it  was 
given  a  monoiK)ly  of  issue  in  1803.  Its  issues  are  limited  cmly  by 
its  ability  to  retleem  its  notes  in  gold  and  by  a  maximum  which  is 
fixed  by  law.  It  has  always  been  necessary  therefore  for  the 
Ijank  to  maintain  a  large  .specie  reserve  for  redemption  purposes. 
This  gold  reserve  may  be  regarded  as  a  sort  of  war  chest,  which 
is  available  for  the  immediate  needs  of  the  government,  and  in 
the  case  of  a  short  war  might  satisfy  all  demands.  The  situa- 
tion of  the  bank  before  the  war.  and  just  after  its  outbreak,  is 
shown  in  the  following  table : 


FRANCE  73 

BANK  OF  FRANCK.  l'>14 
(In  millions  of  dollars  i 

Pri-    I'roas- 

Treas-  vat«-  urv 

Gold     Silver     Bills    Loans  on  N'..U' Cir    tiry  De  Do  Bills 

Date           RestTvc  Kescive  Disc'd  Security  rulation      iwisits  posits  Disc. 

JulyJI,  191J      672.4        125.4      A*         I47.K       1,135.4  Hi-.  1.114 

July  Zi.  1914       820.8        128.        m,2      148.8       1.182.4         «().2  I88.r.  . . 

July  30,  1914       828.2        125.        488.8       152.8       1.336.6          76.0  189.(.  . . 

\ujf.2fi.  1914       aS3.2          73.4      4^,7         117.4       2.590        1.300  492.4  M2 

l"or  a  decade  the  l)ank  had  been  stretijjtheninj,'  its  jjold  reserve, 
and  es|jecially  (htrin>j  tlie  previou.s  year  it  had  addetl  to  it  mate- 
rially.' so  that  whep  hostilities  Ijegan  to  threaten  it  held  thi- 
largest  stock  of  gold  in  its  history,  ainoiint-ng  on  July  23.  1Q14, 
to  69  per  cent  of  the  note  circulation  and  46  \,vc  cent  of  all  liabili- 
ties. It  was  thus  in  a  position  to  render  the  necessary  financial 
assistance  to  the  government.  The  total  stock  of  gold  in  France 
was  estimated  at  $1,400,000,000  of  which  the  bank  held  over 
half,  the  remainder  being  in  nrculation  or  in  the  hands  oi  private 
possessors. 

The  limit  of  the  note  issue  of  the  Bank  of  France  before  the 
war  stood  at  $1,360,000,000.  Under  its  charter,  which  was  re- 
newed in  1897  for  23  years,  the  Bank  must  advance  i)ermanently 
to  the  state  $40,000,000  bearing  no  interest  and  not  repayable 
until  the  expiration  of  its  charter.  It  must  also  in  time  of  war 
lend  to  the  government  at  the  nominal  interest  rate  of  1  per  cent.' 
These  compulsory  advances  had  been  fixed  by  agreement  of 
Xoven*er  11.  1911.  at  $580,000,000.  but  on  September  21.  1914. 
they  were  increased  to  $1,200,000,000  and  on  May  4.  1915,  to 
$1,800,000,000.  As  a  matter  of  fact  the  Bank  began  at  once  to 
lend  to  the  government,  advancing  on  an  average  about  $40,- 

'  The  gold  reserve  of  the  Bank  of  France  was  as  follows : 

Date  Amount 

May  2.  1912  $645,800,000 

May  2.  1913  648ja).000 

April  30.  1914  72a«IO,(»» 

Report  of  M.  Aimoiid.  May  14.  1915,  Senate  Doc.  No.  166,  p  *. 

'  The  rate  will  be  raised  to  3  per  cent  one  year  after  rtie  end  of  the  war, 
thi'  additional  2  per  cent  to  be  set  aside  to  create  a  fund  to  retire  the  debt. 
Journal  des  Economisles.  October,  1914,  p.  64. 


74 


IUKKIT  .\XI>  IXDIRECT  COSTS  OF  THE  WA1 


0(.)0.0(X)  a  week.    The  actual  atlvances  for  the  lirst  five  months  of 
war  were  as  follows : ' 

ADVANCES  BY  BANK  OF  FRANCK  TO  STATE.  1914 

Month  Amount 

August  $1220,000.000 

Septemtxir    200.000.000 

Octolwr    125.000,000 

Xovem»)er  120,000,000 

Deceml)er    120.000.000 


$785,000,000 

These  ad\  atices  to  the  state,  secured  only  by  government  obliga- 
tions, cunstitmed  an  increasingly  large  item  in  the  bank  state- 
ments. 

Not  unly  did  the  Bank  of  France  advance  large  sums  to  the 
government,  it  also  discounted  bills  freely  and  increased  its  pri- 
vate deposits  greatly.  N'o  statements  were  published  by  the  liank 
after  July  30  until  February  4,  1915,  so  that  the  extent  of  its 
services  in  meeting  the  needs  of  the  |>ublic  during  this  j^riod 
can  only  be  guessed.  In  order  to  meet  these  requirements,  the 
limit  to  the  note  circulation  was  immediately  raised.  Before  the 
war  it  had  been  fixed  in  December,  1911,  at  $1,360,(X)0,CXX). 
This  limit  was  immediately  raised  on  August  5,  1914,  to  $2,- 
400,000,000.  Subgequent  increases  were  made  from  time  to  time 
as  the  actual  issues  began  to  approach  dangerously  near  the 
existing  legal  maximum.  These  successive  extensions  of  the 
limit  are  shown  in  the  following  table: 

.NOTI    ISSUE  OF  BANK  OF  FRANCE 

l>alf  limit  I'l.xcd 

DictmlHr.   1911    $l,JdO.0O().U« 

\iiK«.-l  .\  1^14   .'.400.aiO.000 

Miiy   11.    101.';    .LOnCOOBTOO 

Man  !i  l.v  1916 .1.600,n00l000 

l.l.riiarj    I.V  1«;17   4.200.000.(100 

St|.umi.»r  1(1.  1917     4.f*in.(m«,a«> 

I  Vt.ruarv.   191K   5.4OO.0(lll.O()l» 

May,  191K 6.oon.nno.n(K) 

S( plimlM  r.    1918      6..«10,fj00.000 

Marrh   4.    1919    7.2f«,00n,()00 

Mav.    1919       H.floo.oflonno 


'<•    Jr/t-:  "l.i-  l'iiianc<'<  *•  (iiirrrf  ile  la  Fraiur."  in  /y.-fwc  d,-   SV 
(/,•  f.,iii'^liili"it  Aiuif.  i.'rr,  '  >ct'l«  r-Decemhrr.  191.S,  XIII,  4.  649 


,( 


FRANCE 


75 


As  in  most  cuntinental  countries,  the  French  people  prefer  the 
iise  of  actual  money  in  making  payments,  rather  than  checks 
drawn  against  deposit  accounts.  The  expansion  of  note  issues 
reflects  therefore  the  credit  operations  of  the  bank  more  accu- 
rately than  it  would  in  the  United  States.  While  this  is  true  in 
normal  conditions,  the  semi<omi>ulsory  advances  to  the  state 
since  the  war  began  do  not  indicate  a  commercial  demand.  The 
recent  expansion  of  the  note  issues  has  not  been  a  l^itimate  one : 
that  is,  it  has  not  been  in  response  to  business  needs,  and  it  has 
therefore  resulted  in  an  inflation  of  the  currency,  with  its  at- 
tendant increase  in  prices.  The  note  circulation  of  the  Hank  of 
l'"rance  increased  $758,060,000  from  July  30,  1914,  to  January 
28,  1915;  the  increase  during  1915  was  $567,280,000;  during 
1916  it  was  $673,780,000;  during  1917  it  was  $1,131,440,000; 
and  during  1918  $1,582,600,000 — or  a  total  increase  between 
July  30,  1914,  and  December  26.  1918,  of  $5,713,160,000. 

I  f  the  bank  were  to  e.xpand  its  loans  and  its  note  issues  it  would 
endanger  its  gold  reser\es.  Measures  were  therefore  taken  at 
I  >nce  to  safeguard  the  stock  of  gold.  Specie  payments  were  sus- 
liended  August  3.  (jold  disappeared  from  circulation  and  for  a 
time  some  embarrassment  was  felt  from  lack  of  currency.  But 
the  bank  and  its  branches  (|uickly  issued  more  notes  in  the  de- 
nominations of  Ave  and  twenty  francs  which  had  been  prepared 
for  such  an  emergency,  and  which  were  received  willingly  by  the 
peoi^e.  The  bank  also  released  about  half  of  its  stock  of  silver 
coins,  consisting  of  tive-franc  pieces  coined  under  the  agreement 
of  the  Latin  Union.  In  the  southwestern  part  of  France  local 
chambers  of  commerce  issued  one-franc  and  half-franc  notes  to 
meet  the  need  for  small  change.  The  gold  reserve  was  in  this 
way  kept  practically  intact.  It  was  not  only  maintained,  but  was 
actually  increased.  As  a  result  of  an  appeal  from  the  govern- 
ment, the  people  turned  over  to  the  bank  in  exchange  for  notes 
considerable  sums  which  they  were  hoarding  in  characteristic 
French  fashion.  By  May,  1915.  these  exchanges  had  increased 
the  reserves  to  S946,3o6.000  from  $828,260,000  on  July  30. 
1914.     Bv  December  30.  1915.  the  reserves  were  increase<l  to 


'^»  DrRKiT  AND  INPIRECT  COSTS  OF  THE  WAR 

Sl.(XX).(XH).tW.  Ill  April.  l'M(,.  $10l).0lXVKXl  was  sent  to 
IjiKlatid  to  secure  trcilits  there,  and  the  resenes  fell  to  $898.- 
44().(KH)  in  the  latter  imrt  of  Jime.  and  then  steadily  increased 
ajjain.  It  had  lonji  l)een  a  tradition  of  the  Iwnk  that  it  should 
keep  a  large  gold  rescne.  In  June.  1914.  the  gold  reserve 
anioinitcd  to  /"<.  per  cent  of  the  note  issues.  Init  as  time  went  on. 
in  spite  of  the  encouraging  growth  in  the  absolute  amount  of  the 
reserves,  the  relation  which  this  Ijorc  to  the  note  issues  was  made 
continually  more  unfavorable  hy  the  inflation  of  the  note  issues. 
This  relation  is  shown  in  the  fi>llowing  table : 

'^"•f                                        Notes  in  Circulation  (lolil  in  Vault  Ratio 

l)fcembcr  24.  1913 $1,142.710.-'S8  $831,490,926  72  74 

December  30.  1914 2.008.579.944              902.882.574  4505 

Docimbcr  30.  1915 2.661.980.000  1.003.060.000  37160 

Decembers,    916 3.335.760.000              676.560.000  20J8 

December  27.  1917 4.467.200.000               662.880.000  12.60 

December  26.  1918  6.049.800.000               688.090.000  11J6 

Most  of  the  advances  b>-  the  Bank  of  France  to  the  stote  have 
l»een  in  the  form  of  liank  notes  rather  than  of  credit  deposits  to 
be  checked  against,  as  was  the  case  in  England  and  the  Bank  of 
England.  This  accords  with  the  different  usages  of  the  two 
countries  with  respect  to  the  use  of  credit  and  cash.  Immediately 
after  the  outbreak  of  hostilities,  the  government  relieved  the 
bank  of  its  obligation  to  pay  its  notes  in  gold,  and  gave  the  notes 
the  legal  tender  quality. 

Ia)ANS.   1914 

During  the  latter  half  of  1914  the  state  depended  principally 
upon  advances  from  the  Bank  of  France,  the  $785,000,000  re- 
ceived from  it  constituting  two-thirds  of  the  loans.  The  prewar 
3;<:.s  brought  in  about  $100,000,000:  Trcasun-  notes  running 
for  one  year  were  sold  in  London  to  the  amoimt  of  $60,600,000, 
and  in  Xew  York  of  $41,450,000;'  and  finally,  an  appf;al  for 
funds  was  made  direct  to  the  people  of  I'rance  by  offei  ing  the 
short  term  Treasury  bills  known  as  hons  dc  /  t  defense  nationale. 
These  lK>re  4  per  cent  when  issued  for  three  months  and  5  per 

'  Knu,-  dc  Siii-iiit-  el  df  Lrriishlion  /Shohi i.'r,-,  XIII,  4.  672. 


FRANCE 


77 


cent  when  issued  for  one  year.'  They  were  sold  at  96.50  in 
denominations  as  low  as  100  francs  ($20)  and  were  also  used  tu 
|iay  contractors  for  niilitar>-  supplies.'  By  the  end  of  December. 
1914.  about  $339.fiOO,(XX)  of  these  had  been  issued. 

The  issue  of  Treasury  bills  (bons  du  tresor)  was  not  a  new 
device,  but  their  issue  in  this  form  at  this  time  was  a  shrewd 
move.  The  Bank  of  France  and  the  large  credit  establishments 
which  had  previously  in  times  of  peace  been  almost  the  sole  pur- 
chasers of  such  bills  now  had  their  hand:i  full  and  could  not 
absorb  large  quantities.  It  was  therefore  necessary  to  attract 
the  small  savers  and  persuade  them  to  make  investments  directly. 
For  this  purpose  the  new  Treasury  bills  had  several  distinct 
advantages :  * 

( 1 )  The  nominal  interest  was  5  per  cent,  but  as  the  interest 
was  payable  in  advance  this  made  the  yield  slightly  more  than 
5  per  cent  Moreover,  they  were  exempt  from  taxation.  These 
frtCts  made  them  attractive  to  small  investors. 

(2)  In  order  to  adapt  them  to  different  needs,  they  were  is- 
sued for  different  periods  of  time. 

(3)  In  subscriptions  for  future  loans,  preference  was  to  be 
given  to  the  holders  of  these  bills — that  is,  they  were  convertible 
into  long  term  bonds. 

(4)  The  Bank  of  France  agreed  to  accept  them  as  collateral 
for  loans  when  they  had  less  than  three  monthai  to  run.* 

( 5 )  They  were  placed  on  sale  as  widely  as  possible  at  all  post 
offices,  banks,  tax  collection  offices,  treasury  bureaus,  etc. 

That  this  method  of  attracting  the  savings  of  the  small  capital- 
ists was  successful  is  shown  by  the  fact  that  over  50  per  cent  of 
the  bills  sold  were  in  denominations  of  $200  and  under.    To  sum 


>  L'Economiste  franfau,  September  19,  1914. 

*  Economist  (London),  October  17.  1914,  p.  643. 

^  G.  Ji«e :  "Les  Finances  de  Guerre  de  la  France,"  in  Rrvue  de  Science  *t 
de  U^siatioH  financit^re,  October-bccember,  1915,  XIII,  4,  661. 

■*  'WTje^ier  for  this  reason  or  not,  the  three  months'  bills  were  the  most 
popular.  Up  to  January  24,  1915,  the  three  months'  bills  amounted  to 
$171,068,680;  the  six  months'  bills  to  $83.;n4,620;  and  the  one-year  to 
185.226,940.  The  first  group  therefore  constituted  more  than  half.  Ibid.. 
p.  671. 


'**  niKic  T  WD  ixiimK(  r  tosTs  ok  tiik  w  ak 

it|.  tin-  cmlit  opfrati.in^  of  the  last  live  months  oi  the  vcar  1<>14, 
the  luIlnxvinK  tal.lc  shows  the  receipts  Ironi  »K.rr.»uinR: ' 

FkAN'tE'S  LOANS.  1914 
Form  . 

u  ._-  J.    T  Amount. 

OrHfnary  Trrasury  l.ill.   '.\\ '5?"2S'S2 

Hons  d,-  l„  diicnsc  mli.malc tSSrSS 

Prrwar  ,?'..  per  cent  loan «Sft'nno 

AHvanro,  Kanki  of  Fran. <•  and  AIr* ria '.'.'.'.'.'.'.'.'.'.'.[[  TSSioOoioS 

$1.272.92O.a0U 
Against  these  were  to  Ik?  reck<»necl  certain  exfienditures  such  as 
reiwyment  of  the  first  two  items,  advances  to  foreign  govern- 
ments of  $30,401,000  and  some  other  items  anvxinting  all  told 
to  $.'20,880,800.  There  was  thus  a  clear  halance  of  over 
S1.<XX).000.000  from  these  sources  for  the  expenditures  of  the 
war.  It  was  a  distinct  achievement  to  have  raised  these  sums  in 
the  face  of  the  financial  diffinilties  which  France  confrontetl. 
and  to  have  done  so  without  resort  to  an  issue  of  |wikt  mtniev  or 
other  «|uestionaNe  fleviie. 

r^XPENDITlRKS,   1914 

The  actital  e.xjK-mlitures  of  !•  ranee  during  1<>14  are  diflicult. 
if  not  inipossihle.  to  determine  with  accuracy,  as  votes  of  credit 
were  made  by  .|uarters.  hut  often  the  actual  expenditure  exceeded 
the  credits  voted,  and  the  next  vote  would  carry  a  supplemental 
vote  t..  cover  the  unauthorized  excess.  As  reflected  in  the  votes 
of  credit  granted  frrrtn  August  1.  1014.  to  December  31.  1914 
however,  this  amounted  to  $1.779.71 -.000.  distributed  a.s 
follows : 

Military,    m.l  cxcplional  civil,  exptnditurc ti  4«,  lUTrno 

l.xprnsc  of  <|cbt  service i5ii£'JX 

Ordinary  civil  service   IM^JOOO 

$1,779,717,000 
KXI'E.VIHTIRE.S.  1915 

The  o,)ening  of  the  year  1915  saw  little  change  in  the  use  of 
credit  or  credit  devices  by  the  government.    As  the  yield  of  the 

'  KnMc  dc  Siiiiue  ft  dc  Ugislation  financu-re.  Mil.  6M. 


rRANCE  79 

esistinj:  taxes  had  fallen  off  36.6  |)er  cent  Utr  the  year  1914.  and 
no  new  taxes  were  imsitible.  loans  must  constitute  the  mainstay 
The  situation  was  sliifhtly  bettered  in  1915.  during  which  year 
the  tax  ileficit  below  normal  was  only  19  per  cent.  The  enor- 
mous increase  in  expenditures,  owing  to  military  operations,  re- 
lief to  war  victims,  and  increased  expenses  in  connection  with 
the  public  debt  itself,  called  for  a  vast  increase  in  the  require- 
ments of  the  government.  To  these  must  be  added  the  deficit  in 
the  ordinary  civil  budget  occasioned  by  the  decline  in  ux  rev- 
enue. .\ccordingly,  further  advances  were  secured  during  this 
year  fnjm  the  Bank  of  France,  amounting  in  all  to  $220,000,000. 
although  these  advances  had  risen  from  $1,000,000,000  at  the 
lieginning  of  the  year  to  $l,480,00O.(XX)  on  November  25  which 
was  reduced  from  the  proceeds  of  the  Noven*er.  1915.  loan, 
lea\ing  the  total  advances  at  the  end  of  the  year  at 
SI. 000.000,000. 

It  was  manifest,  however,  that  more  energetic  measures  must 
l»e  taken  to  raise  the  sums  necessary  to  meet  the  growing  costs  of 
the  war.  The  strictly  military  expenditures  for  the  last  five 
months  of  1914  had  been  $1,173,000,000.  The  burden  of  the 
w  ar  was  not  yet  reflected  in  the  other  forms  of  expenditure  such 
as  debt  charges,  care  of  dependents,  etc.  EKiring  the  next  twelve 
months  there  was  an  increase  not  m  .-ely  in  the  strictly  military 
exiwnditures,  but  also  in  the  debt  charges,  the  social  expenditures 
such  as  relief  of  soldiers'  families  and  those  from  the  devasUted 
area,  and  expenditures  for  ordinary  civil  purposes.  The  fol- 
lowing table  shows  these  expenditures  by  general  groups  from 
the  beginning  of  the  war  to  the  end  of  1915 : 

FRENCH  EXPENDITURES,  1014-1915 
(In  millions  of  dollars) 

Iteniixation                                         Aug.  1-Dec.  31. 1914  Jan.  1-Dec.  31. 1915 

StricUy  miliury   $1,173.4  $3,153. 

Debt  charges    !»•  ^ 

.Social  expenditure    98.8  ^S^ 

Other  expenditure  387.5  485* 

$1,779.7  |4,S60J 


MICROCOPY   RESOIUTION    TEST   CHART 

ANSI  and  ISO  TEST  CHART  No    2i 


1^ 

i^ 

m 

Hi. 

1^ 

IIIIM 

1. 

|36 

Ui 

1.8 


1.6 


^     ^;^LIED  IIVHGE 


'6*)!   East    Ma.n    street 

Rochester.    Ne,    ,„,,,         ,.503         ^ 

("tl    iS2  -  0300  -  Phone 

("6)   288-  5989  -  Fq, 


m 


80 


DIRECT  AND  INDIRECT  COSTS  OF  THE  WAR 

Borrowings,  1915 


il 


history  of  this  transaction  which  (or  six  n,™,,!  I  j       ,1 
the  operations  of  the  Trensnrv     pT    ^  ^'     ''  '"^™s«<l 

three  oaatlers  of    L  '    ,'''»°"  "a'abohad  for  the  first 

Ab^M$TwTO<itt  VT  '°/""''"  '='"-  ■>'  Treasury  bills. 

to  T;^  :rsr^.ss:^-  "^o„r,i:o's^r r ■-  r^ 

l«n  issued  up  to  September  14    1914      ^T  ^  '"  '"" 

that  these  biifs.  <or^^>y^i^:;Z\:'x;^:zzT 

cred,.  .nstituti™,,  should  now  be  dis^edXf'^d  ^  ;",;  ^^ 
.'n  tonrl'-a  roT'lw  "^'jTZ  f""'  *"'"  "'"  '-^ 

::^r:rr:^s::;Ztr.?^-rr--°" 

^^  LIMITATION  OF  ISSUE  OF  FRENCH  TREASURY  BILLS 

(Prewar)    ..  Fixed  at 

December  3,  1914      $188,000,000 

Jp"""yl5,  1915  ...■.■.■.■.■.■.■.■;; • $280,000,000 

March  27,  191S  700,000,000 

May  8    1915 900.000,000 

J""e,  19l3   1.200.000.000 

1,400,000,000 

The  purchase  of  these  bills  was  urged,  not  merely  on  the 

ground  of  patriotism,  but  also  upon  purely  investm'n^  mer£ 

Iheir  sale  was  not  confined  to  France   hi,/th«,r  t       a  . 

market  in  England  and  United  4?^   tI      ^  ^  '^^^ 

month  by  month,  as  followT  '  ""°""'  ^'  "'^^  """^^ 


UySBKiftss,^ 


FRiVNCE 


81 


October  S.  1914  $43,S6O,0a) 

January  21,  1915  540.000,000 

March  5,  1915 708,400,000 

April  30,  1915  969,600,000 

July  31,  1915  1,391,600,000 

October  31,  1915  1,903,600,000 

On  February  25,  1915,  a  second  type  of  short  term  obligation 
was  offered  to  the  public,  namely,  obligations  de  la  defense  na- 
tional. They  were  5  per  cent  ten  year  bonds  issued  at  96.5 
without  any  limitation  of  amount.  The  Treasury  bills  {bons  de 
la  defense  nationale)  and  the  prewar  3>4  per  cent  bonds  could 
be  funded  into  the  new  issue,  the  latter  at  91.  These  obligations 
had  two  features  which  were  indicative  of  the  difficult  financial 
situation  in  which  the  Treasury  found  itself,  both  of  which 
were  designed  to  make  them  more  attractive  to  investors — they 
were  made  tax  exempt,  and  interest  was  paid  in  advance.  The 
fonrer  was  a  decided  break  with  French  practice,  for  all  bonds 
hitherto  issued  had  been  taxable.  The  second  circumstance,  that 
of  payment  of  interest  in  advance,  was  not  only  without  prece- 
dent in  France,  but  was  probably  without  parallel  in  the  financial 
history  of  modem  European  states.  The  actual  interest  rate 
was  raised  by  these  various  concessions  to  about  5.7  per  cent. 
Of  the  $442,800,000  of  the  new  obligations  which  were  disposed 
of  in  the  first  three  months  to  June  15,  $141,400,000  were  ex- 
changed for  the  3yis  and  $281,000,000  for  Treasury  bills,  so 
that  only  $20,400,000  was  paid  in  cash.*  The  troublesome  pre- 
war loan  had  now  finally  been  put  away,  and  further  sales 
brought  relief  to  the  Treasury.  By  July  31,  $539,000,000  of 
these  obligations  had  been  sold,  and  by  the  end  of  the  year 
(December  23,  1915)  the  issues  amounted  to  $760,000,000.* 
Altogether,  these  represented  loans  of  $2,520,000,000  to  which 
must  be  added  credits  advanced  by  the  English  exchequer  to  the 
extent  of  $300,000,000  secured  by  the  deposit  of  $100,000,000 
in  gold  sent  over  by  the  Bank  of  France. 

Until  now  the  domestic  resources  had  been  drawn  upon  almost 
exclusively,  but  it  had  become  necessary  by  reason  of  the  large 

'  Yves   Guyot :    "Les    Depenses   et   les   Ressources   de    la   France   et   du 
Royaume  Universite,"  Journal  des  Economistes,  July.  1915.  o.  5. 
=  Statement  of  M.  Ribot  on  December  24,  1915. 


;; 


!! 


il 


!!tj 


gi   ^ 


«-  rMRECT  AND  INDIRECT  COSTS  OF  THE  WAR 

ether  to  ,jay  tim  foreign  indebtedness  or  to  place  a  loan  there 
Accordingly   ,n  October,  1915.  the  French  Govemn^ent.  in  con 

?onl,;Z'T-         "^^'""/^"^'"^  h^'f-    This  Anglo-French  loan 
cons.s  ed  of  .  per  cent  hve  year  bonds  maturing  in  1920  and 

mem  $240,000,000.  of  which  $80,020,000  was  paid  in  during 

All  these  sums  proved  insufficient,  however,  and  on  November 

16  the  first  national  loan  was  ."ssued.     This  was  known  as  the 

Na  onal  Defense  Uan"  and  consisted  of  5  per  cent  rentes  per- 

MeL    issued  at  88.'    Exemption  from  taxation  was  extended 

n  M      "r""^"'  ""'  "*''"^^*-     P^^"^"'  ^-'d  be  made  in  fo^r 
n  talments  endmg  in  March.  1916.     The  government  reserved 

t  'of  T Lr  rr  ^'r  j^""^^>'  ''-  ''''■  ^^  ^^^  --4 

mass  ot  Treasury  bills  and  obligations  which  were  outstanding 
yielded  an  interest  rate  of  somewhat  over  5/.  per  cent  k  was 
...possible  to  issue  a  5  per  cem  loan  at  par.  TheTnteres  'me  ^n 
a  .  ,>er  cent  loan  at  88  figures  out  at  about  5.73.  and  this  fact 
evidently  detennined  the  issue  price.  Such  a  rate  of  intere" 
jomed  with  the  prospect  of  a  further  gain  from  a  rise   n    he 

o  secure  large  subscnptions.  As  a  matter  of  fact,  over  four  mil- 
hon  separate  subscriptions  were  received  for  this  loan.  1.970000 
.n  Pans  and  2.186.000  in  the  rest  of  France.  Over  $200mZ 
m  subscnptions  were  made  abroad,  of  which  $120,400,000  ^ere 

^00.000  payment  for  which  was  made  in  the  following  fonns:'^ 

Money   and   bank   notes ti  ^i  enn/w^ 

Treasury  bills  (bonds)   ! .  i .  j .' ; ; ; ;  ]  [  \  [  [  [ ' ;  j*  "Js'wo'oOO 

5  per  cent  obligations AvtAf^nn;^  $1,719,100,000 

3  per  cent  rentes   5o^'^'Sx2 

S'A  per  cent  rentes '■'■'■'■'■'.'.'.'.'.'.'.'.'.'.'.[['         SOOo'ooo 

'• —       929,400,000 

'  Statist,  February  26.  1916.  p  387  $2,648,500,000 

^Journal  des  nawomist^s.  January.  1916,  p.  161:  ^■o^ ember.  1916.  p.  311. 


■*tM^^. 


FRANCE 


y3 


Xot  only  were  the  Treasury  bills  and  the  5  per  cent  and  3j<i 
per  cent  bonds  converted  into  this  new  loan,  but  the  old  3  per 
cent  perpetual  debt  was  admitted  to  conversion  in  spite  of  con- 
siderable opposition.  The  holders  of  this  debt,  however,  were 
permitted  to  use  this  for  the  payment  of  only  one-third  of  their 
subscription  in  the  new  loan ;  the  other  two-thirds  must  be  paid  i;i 
cash.  The  rate  of  exchange  for  the  3  per  cent  bonds  was  fixed 
at  66.  The  loan  was  thus  in  part  a  conversion  of  existing  bonds 
running  for  a  shorter  period  or  bearing  a  lower  rate  of  interest, 
and  in  part  the  raising  o£  what  M.  Ribot  called  "argent  frais." 
About  half  the  loan  was  net  cash,  which  at  the  current  rate  of 
expenditure  would  cover  the  military  expenses  of  about  three 
months.  The  total  loans  of  the  year,  however,  together  with 
revenue  from  taxes,  sufficed  to  meet  the  expenditures. 

A  policy  which  depends  upon  loans  for  87  per  cent  of  the  rev- 
enue, and  upon  taxes  for  only  13  per  cent,  is  one  which  can  be 
successful  only  if  the  war  is  a  relatively  short  one  and  the  sum 
to  be  borrowed  comparatively  small.  In  the  case  of  a  long  strug- 
gle, the  loan  policy  almost  inevitably  breaks  down,  first  because 
mounting  interest  on  the  loans  themselves  calls  for  additional 
taxes,  and  second,  because  additional  loans  are  to  be  had  only  at 
constantly  higher  rates.  The  debt  charges  alone  for  the  year 
1915  amounted  to  $380,000,000.  For  the  year  1916  they  wert 
$663,357,402,  or  practically  as  much  as  was  then  being  raised  by 
taxation.  As  it  was  now  obvious  that  the  war  would  not  be 
brought  to  a  speedy  termination,  it  was  clear  that  new  sources  of 
tax  revenue  must  be  developed  in  spite  of  all  the  difficulties  which 
attended  such  a  course,  and  the  terrible  war  burden  which  France 
was  already  carrj'ing. 

An  interesting  parallel  might  be  drawn  at  this  point  between 
the  financial  policy  of  France  during  the  first  year  and  a  half  of 
the  war,  and  that  of  the  United  States  during  the  Civil  War.  As 
Secretar}'  Chase  believed  the  Civil  War  would  be  over  in  a  few 
months,  so  it  was  thought  by  some  in  France  that  the  present  war 
would  not  last  longer  than  seven  months.'    Consequently,  it  was 


■A.\ 


i 

>.6f 


^  J 


»  L'Ecoiwmiste  fran(ais,  January  30,  1915,  p.  132. 


11;' 


84  DIRECT  AND  INDIRECT  COSTS  OK  THE  WAR 

not  only  urged  that  no  taxes  be  levied,  but  that  not  even  a  definite 
loan  be  issued,  as  the  war  could  easily  be  financed  by  advances 
from  the  Bank  of  France  and  the  issue  of  Treasury  bills.' 

Part  of  the  financial  difficulty  in  which  France  now  found 
herself  is  traceable  to  her  financial  policy  of  maintaining  a  per- 
petual debt.  The  evils  certainly  go  back  as  far  as  1871,  at  which 
tmie  the  Assembly  did  not  have  the  courage  to  impose  heavy 
taxes  to  meet  the  German  indemnity.'  But  subsequent  legisla- 
tures must  be  held  equally  culpable  in  not  paying  off  the  load  of 
debt  passed  on  to  future  generations,  thus  clearing  the  way  for 
future  needs. 

From  the  proceeds  of  the  November  loan  the  Treasury  was 
able  to  pay  back  some  of  the  advances  of  the  Bank  of  France 
These  stood  at  $1,480,000,000  on  November  23.  just  prior  to  the 
first  payment  on  the  loan,  and  two  weeks  later,  on  December  30 
they  had  sunk  to  $1 .000,000,000. 

The  total  receipts  by  borrowing  during  the  vear  1915  may  be 
summarized  as  follows : 

FRANCE— BORROWINGS,  1915 
Source 
Treasury  bills  Amount 

National  defense  ohMgkiions ' i::]:::::::]]' [ ^'•^•^•^ 

Anglo-French  loan  in  U.  S.  A m'^'^ 

National  war  loan,  November,  1915 .■:;.:;:::::: 2  ImSoo'oOO 

Advances  by  Bank  of  France '?w'nS'^ 

Miscellaneous    ii'iJi'lJJ! 

40,800,000 

^°*'' ..$3,971,220,000 

The  situation  of  the  Treasury  on  December  31,  1915.  as  a  re- 
sult of  the  various  loans  contracted  from  the  beginning  of  the 
war  up  to  that  time,  was  as  follows : " 

I  ^.'^"^'"""'ijf    franfais.  December  26.  1914 

rt  A/'r--,r''  "^"  P"'.'!a"ces  de  Guerre  de  la  France,"  in  Revue  de  Science 
et  deLegtslatto,,  fimnciere  (April-June,  1915),  XIII    295 

i„   rT''"'?^"^^'"'^".  "^  Deputies.  Z?<,c.„««...r;  AV    .,„-    p    42    cited 
>uK^.ue  de  Sctcce  et  de  I.eaislation  financier,   (April-June;  l^ie].' XI v! 


^tlij 


FRANCE 


85 


Cash  on  Hand: 

In  France  and  Algeria  $34,587,200 

In  Undon   81,774.800 

In  United  States  34,820.600 

$151,182,600 

Floating  Debt: 

Ordinary  bills  due  or  not  due 8.685,000 

Sons  de  la  defense  nationale 1.392.583,600 

Foreign  Treasury  bills 232.938,400 

Special  funds  of  Treasury  General 28.047.200 

1.662.254.200 

Terminable  Debt: 

Sexennial  bonds    18.812.400 

Ten  year  5  per  cent  bonds 126,469,000 

25  year  S'A  bonds.  loans  in  United  States 80.020.600 

225.299.600 

Consolidated  Debt: 

Five  per  cent  loan 2,193.400,000 

Advances  by  the  Banks: 

Bank  of   France 1.000.000,000 

Bank  of  Algeria 15.000.000 

1.015.000.000 

Grand  total   $5,247,136,400 

Taxation,  1915 

The  revenues  of  France  fell  off  during  1914  and  1915  from 
their  normal  yield  of  1913.  The  decline  in  1914  was  $131.- 
090,000  below  the  1913  receipts,  and  in  1915  it  was  still  $151,- 
117,209  below  the  1913  receipts,  although  contrasting  the  periods 
between  August  1  and  December  31  in  these  years,  the  1915 
period  showed  a  gain  of  $74,400,000  over  the  1914  period.  This 
was  due,  of  course,  to  the  invasion  of  eleven  of  the  departments, 
and  the  recover)'  was  due  to  increased  taxation  in  the  uninvaded 
parts.  The  levy  of  the  1914  income  tax  which  was  to  go  into 
effect  January  1,  1915,  owing  to  the  outbreak  of  war  was  de- 
ferred to  January  1.  1916. 

The  receipts  and  expenditures  for  the  year  1915  are  as  follows : 

Expenditures    $4,560,900,000 

Revenue  receipts  $796,800,000 

Loans    3,971,220,000 

4,768.020.000 

Expenditures.  1916 

The  expenditures  of  France  during  the  War  had  shown  a 
steady  increase,  those  for  this  year  amounting  to  more  than 


:! 


II  ; 

'4 


':   1 


f  a 


J. 


^*  niKKl  T  AXU  INDIRECT  COSTS  OF  THE  WAR 

the  combined  1914  and  1915  expenditures.  The  heavy  increase 
due  to  .nil.tar>-  o^rations  tUirin-  this  year  was  greater  than 
the  total  for  1914  and  1915,  and  the  debt  charge  doubled  that 
of  1915.  while  the  large  increase  in  the  civil  budget  which  car- 
ried war  pensions  and  social  relief  remained  about  the  same 
However,  as  the  supplementary  votes  of  credit  made  to  cover 
deficits  showed  that  these  figures,  which  are  based,  not  upon 
actual  expenditure  but  only  upon  votes  of  credit,  were  far  below 
the  amounts  actually  expended,  it  may  be  assumed  that  the  civil 
budget  was  greater  than  the  amount  given.  The  votes  of  credit 
for  this  year  were  distributed  as  follows : 

Militarj'  and  exceptional  civil   service $5  448081  nnn 

Expense  of  debt  service *  '^'SSl'SSS 

Ordinary  civil  service   '.'.'.'.'.'. StS'^s nnn 

$6,589,029,000 
These  figures  show  a  progressive  increase  which  tended  at  all 
times  to  outrun  the  receipts.  They  represent  credits  granted,  but 
do  not  include  advances  made  by  France  to  her  allies.  The  daily 
average  of  $8,785,000  of  1914  was  gradually  increased,  amount- 
ing in  1916  to  $18,2-6,000.  If  advances  to  allies  were  added 
It  would  run  over  $20,000,000.  By  the  end  of  1916,  these  ad- 
vances were  as  follows : 

Ally 

Belgium     Amount 

Serbia    ...  $118,400,000 

Greece  33,000,000 

-Montenegro    .' l.OOO.COO 

80,000 

The  credits  for  all  public  expenditure  except  advances  to  allies 
were  approximately  $4,560,000,000  for  1915  and  $6,580,000,000 
for  1916.  The  difference  between  expenditures  and  ordinary 
receipts  vyas  formidable,  and  showed  a  steady  growth  for  1916 
over  1915.  The  increase  of  militarj'  expenditures  for  1915  over 
the  preceding  year  was  69  per  cent,  but  in  1916  the  increase  over 
1915  was  /2  per  cent.  The  situation  may  be  stated  as  follows 
(m  round  numbers)  : 


FRANCE 


tl7 


Year 

1915., 
1916. . 


Expenditures 

$4,561,000,000 

6.579,209,000 


Receipts 

$776,794,297 

933,336,000 


Deficit 
$3,784,206,000 
5,645,873,000 


For  1915  the  proportion  of  public  expenditures  covered  by  nor- 
mal receipts  was  16.4  per  cent.  By  1916  it  had  fallen  to  13.98 
per  cent.    The  difference  had  to  be  met  by  loans. 

The  Finance  Minister  had  asked  a  vote  of  credit  on  November 
26,  1915,  which  would  cover  expenditures  for  the  first  quarter 
of  the  next  year.  But  the  statement  made  on  this  occasion  shows 
no  change  in  point  of  view  or  policy.  The  estimates  were  some- 
what more  accurate  now,  however,  as  a  result  of  the  experience 
of  the  past  year.  Receipts  from  taxes  began  to  show  a  gradual 
but  steady  recovery.  But  the  government  hesitated  to  raise  new 
taxes,  or  to  increase  the  rates  of  existing  ones,  consequently  the 
needed  simis  were  raised  by  advances  from  the  Bank  of  France 
and  the  issue  of  Treasury  bills. 

Banking  and  Currency,  1916 

The  advances  of  the  Bank  of  France  to  the  state  continued  to 
grow  steadily  for  the  first  three  quarters  of  the  year  1916  from 
$1,060,000,000  on  January  6  to  $1,760,000,000  on  October  19. 
The  government  was  then  able  with  the  proceeds  of  the  second 
war  loan  to  liquidate  $440,000,000  of  the  debt,  as  a  result  of 
which  the  advances  fell  of?  sharply  to  $1,300,000000  on  Novem- 
ber 30.  The  Bank  of  France  performs  its  wo.  :  of  extending 
credit  principally  by  nieans  of  its  note  issues,  which  are  accord- 
ingly significant.  The  issues  increased  pari  passu  with  the  ad- 
vances to  the  state  and  the  exte'^sion  of  accommodations  to  pri- 
vate industry.  From  $2,703,800,000  on  January  6  they  swelled 
to  over  $3,400,000,000  on  October  5.  Then  there  was  a  tt:  - 
porary  decline,  but  the  upward  movement  soon  began  again. 
The  increases  necessitated  raising  the  legal  maximtun  which 
had  been  fixed  by  the  decree  of  May  8,  1915,  at  $3,000,000,000. 
By  the  end  of  the  year  they  stood  at  $3,335,760,000.  The  in- 
crease in  the  note  issues  can  be  traced  in  the  returns  of  the  bank 
(p.  76).     Owing  to  the  hoarding  of  notes  by  the  people,  it  is 


i 
1 1 


HH 


niRKCT  AND  INDIRECT  COSTS  OK  THE  WAR 


r. 


ini|)ossible  to  state  to  what  extent  the  note  circulation  increaseil 
■—certainly  it  was  less  than  the  actual  issues.  The  gold  reserve 
reached  the  highwater  mark  on  i:)ecember  30,  1915.  of  $1,003,- 
000.000  around  which  it  stood  with  slight  fluctuations  until 
April.  1916.  when  it  sank  to  $960,000,000.  Thereafter  it  grew 
again  until  at  the  end  of  the  year  it  again  stood  at  $1,000,000,000. 
During  1915  and  1916.  Bank  of  France  had  collected  froni  the 
public  over  $400.(XX).000  in  gold,  and  in  the  same  years  had 
shipped  abroad  to  correct  exchange  nearly  $500,000,000  in  gold. 
In  June,  1916,  the  bank  erected  gold  credits  abroad,  which  there- 
after appear  in  its  statements,  and  mobilization  of  foreign  se- 
curities was  resorted  to  in  order  thereby  to  equate  foreign  ex- 
change and  retluce  the  exportation  of  gold. 

Borrowings,  1916 
In  order  to  facilitate  the  placing  of  foreign  loans,  the  govern- 
ment issued  a  call  for  the  holders  of  securities  of  neutral  nations 
to  loan  them  to  it,  agreeing  to  add  25  per  cent  to  the  net  annual 
return  of  the  securities  deposited.'    These  could  then  be  used  as 
collateral  by  the  government  in  effecting  a  loan  on  its  own  ac- 
count.    In  the  event  that  they  were  sold  by  the  government    it 
was  agreed  that  payment  would  be  made  at  the  highest  quoted 
price  durmg  the  preceding  quarter.     Only  "bearer"   securities 
« ere  eligible,  and  the  period  for  which  they  were  borrowed  wa.s 
hxed  at  one  to  three  years.     The  securities  thus  obtained  were 
used  to  secure  a  l.xin  of  $100,000,000  from  a  banking  syndicate 
in  the  United  States  headed  by  J.  P.  Morgan  &  Company.^     As 
the  I<  reach  Government  itself  did  not  wish  to  give  collateral  for  a 
government  loan,  this  flotation  was  arranged  through  the  or- 
ganization of  a  corporation  known  as  the  American  Foreign 
Securities  Company.     On  July  9,  1916.  it  was  offered  to  the 
American  public  in  the  form  of  $94,500,000  three  year  5  per  cent 
gold  notes  dated  August  1,  1916,  at  98  and  interest.     At  this 
price  the  notes  would  yield  about  5.74  per  cent.    The  loan  was 

•'•  ^".J!"'"''''""''  "'"'  l^i'iaiuial  Chronicle,  January  20,  1917,  p.  204. 


FRANCE 


89 


oversubscribed  in  two  days.  Successful  as  was  this  loan,  it  was 
secured  at  a  very  high  price.  The  terms  offered  the  owners  of 
the  securities  were  much  more  favorable  than  those  grante<l 
English  owners  by  the  British  Government.  In  September,  1916. 
another  loan  of  $50,000,000  was  placed  by  France. 

The  sec(Mid  permanent  internal  loan  was  authorized  by  decree 
of  September  15,  1916.  This  was  a  perpetual  rente  at  5  per  cent 
irredeemable  before  January  1.  1931.  It  was  modeled  after  the 
first  loan,  and  was  issued  at  88.75.  As  in  the  case  of  the  first 
loan,  the  bonds  were  exempt  from  taxation,  and  the  first  instal- 
ment of  interest  was  paid  in  advance.  This  brought  the  actual 
cost  to  the  subscriber  to  87.50.  The  subscription  period  was 
fixed  from  October  5  to  October  29,  and  the  period  of  payment 
in  four  instalments  was  extended  until  April  16.  1917.  Since  the 
bonds  were  sold  at  a  discount  and  other  concessions  were  given 
the  purchasers,  the  interest  rate  figured  out  as  in  the  case  of  the 
first  loan  at  about  5.7  pei  cent.  Professor  Leroy-Beaulieu 
wrote  of  this  loan:  "One  would  seek  in  vain  over  the  whole 
world  among  the  solvent  states  for  so  favorable  conditions." 

The  question  of  means  of  payment  presented  itself  in  connec- 
tion with  this  loan.  Vigorous  efforts  were  made  to  induce  cash 
subscriptions,  since  the  mere  conversion  of  former  issues  would 
not  assist  in  n»eeting  the  current  obligations  of  the  government. 
Treasury  bills  were  admitted  as  a  means  of  payment,  as  there 
were  then  in  circulation  on  September  31,  1916.  about  $2,633,- 
000,000,  the  bulk  of  which  would  mature  shortly.  The  5  per 
cent  obligations  were  admitted  to  conversion,  about  $207,400,000 
being  outstanding.  Finally,  there  was  a  small  remnant  of  the 
prewar  3j^s  which  had  not  been  converted  into  the  first  loan, 
and  this  was  now  again  given  the  conversion  privilege.  The  issue 
was  favorably  timed,  following  the  military  successes  of  the  sum- 
mer which  roused  the  hopes  of  the  French  people.  The  Finance 
Minister  announced  the  result  of  the  loan  in  the  Chamber  of 
Deputies  on  November  9,  when  he  stated  that  the  total  subscrip- 
tions amounted  to  $2,272,000,000.  The  total  receipts  by  bor- 
rowing during  the  year  1916  may  be  summarized  as  follows : 


I 


!t 


W  UIKKl  I   AM)  IXDIHKCr  Cf\STS  OK  TMK  WAH 

P„^^  KKANCE.  BORROWINGS,  1916 

Halancc   AnKJ.i-Frencli   loan  Amount 

Tw,.   Unite.)   Slates  collateral ' loan. .■.■::;:;;; *}mS?'SII 

1  riasury  l.ills  jold  in  England                  150,000,000 

Hon,  de  la  ,lefen,e  nationale.  unconveWrt! ;::;:;:;; 263l'5S'SS 

Ivlo  loan,  new  n-onev                                         *.OJJ,^01>,000 

Advances  Bank  of  /"Vance 1.136,000,000 

( IWiKation,  ,le  la  defense  nationale: ! ! .' .' ! ! .'  ] ! ^'^^ 

Credit  >n  England  by  shipment  of  gold ;.;;;: Wo'^mS 

Other  foreign  credits    ...                                    •HW.UOO.OOO 

Ordinary   Trea.<ury   bills 80,000,000 

Advances,   Bank  of   Algeria %400,000 

*       9,000,000 

°  " $5,577,000,000 

Taxation,   1916 
The  transactions  for  the  year  1916  were  a.s  follows: 
Expenditures    .,  ,»„ . 

Revenue  receipts i:::::::::::::::::::^^^^^-^''^^^' 

'"*    5.577,000,000 

$6,510,300,000 

This  table  shows  clearly  the  inadequacy  of  the  ordinary  tax 
receipts  to  meet  even  nonmilitary  expenditures.  The  interest 
on  the  debt  alone  now  amounted  to  almost  as  much  as  the  to.-l 
tax  receipts  ($791,920,000).  In  1916.  however,  the  recovery  of 
the  1914  and  1915  deficit  over  prewar  1913  normal  had  been 
.mde,  and  the  revenues  to  the  end  of  1916  just  about  equaled  the 
1913  yield.  The  follmving  table  shows  how  the  revenues 
recovered : 


«4 


>  K \NCE 


91 


REVENUES  OF  FRANCE.  1913  To  1915> 

(In  dollars) 

Source  1913  1914  1915  1916 
Tax  Revenues : 

Direct  tax    $112,563,153  $114385.889  $109,785,903  $96,403,167 

\ssimilated   taxes    ...  11.903.652  12.300497  12.975.514  9,740,680 

Registration    166.733,400  123.002,200  92.718.900  104.923.400 

Stamps    47,926.300  39.190.400  29.233.500  31.527.600 

Bourse    operations..  1.968.500  1.143,700  262.400  468,400 

Personalty  Ux    .   .  27.609.800  30.668.000  31.556.400  36,286.500 

Import  duties    150376,400  115,522,600  152,828,800  279384,200 

Indirect    taxes    134,785,600  112.421.600  95,413300  94,580,400 

Tax  on  mineral  oil....  396,600  291,000  45,400  92,400 

Tax   on    salt 7,047300  6,743.400  6.370300  6,190300 

Tax    on    sugar 35,918,200  29,638^00  40.952.600  34.619,400 

Total   taxes $697,729,405  $585,807,386  $572,144,017  $696,716,947 

Nontax  Revenues: 

Monopolies    203.155,400  186,212280  167.514.060  188,5%.680 

Domain,  etc 27,026,700  24.801,^0  37.136.220  48.040,820 

ToUl    revenue $927,911,505    $796,821,386    $776,794,297    $933,286,447 

The  1914  income  tax  was  lirst  levied  in  1916,  and  its  returns 
stated  by  Al.  Kibut  tu  the  Chamber  of  Deputies  on  May  18,  1916. 
This  tax  was  imposed  upon  all  persons  having  a  net  income  of 
$1,000  or  over.  There  were  various  dedtKtions  and  abate- 
ments, an  allowance  of  $400  being  made  to  a  married  man,  and 
an  additional  $200  for  each  dependent  child  up  to  five;  beyond 
five,  there  was  an  allowance  of  $300  for  each  child.  Similar 
allowances  were  made  to  unmarried  persons  with  dependents. 
Deductions  could  be  made  also  for  interest  on  debts,  arrearages 
in  payments  made  by  the  taxpayer,  other  direct  taxes,  and  losses 
resuiiing  from  failure  of  an  agricultural,  commercial  or  indus- 
trial enterprise.*  A  limited  prc^ression  was  introduced  into 
the  tax  by  a  rather  complicated  method.  The  tax  was  calculated 
by  counting  at  one-fifth  the  income  between  $1,000  and  $2,000; 
at  two-fifths  that  between  $2,000  and  $3,000;  at  three-fifths  that 
between  $3,000  and  $4,000;  and  at  four-fifths  that  between 
$4,000  and  $5,000.  All  over  $5,000  was  to  be  counted  at  its 
full  value.    The  rate  of  the  tax  was  2  per  cent.*    It  was  esti- 

>  Journal  OMciel  de  la  Ripublique  Fransaisc. 
« Uw  of  July  15,  1914,  Art    10. 
»Ihid.,  Art.  154. 


■f- 


92 


DIKECT  AND  INOIRECT  COSTS  OF  THE  WAR 


mated  that  the  tax  would  yield  a  revenue  of  about  $12,000,000 
to  $16,000,000.  but  with  such  liberal  exemptions  it  was  clear 
that  the  incidence  of  the  tax  would  be  chiefly  upon  the  well-to-do 
and  the  very  wealthy.  Out  of  a  total  of  some  11. 000,000  income 
receivers,  it  was  calculated  that  only  400,000  or  500,000  persons 
would  pay  the  income  tax.  The  actual  returns  showed  that  the 
declarations,  which  were  virtually  optional,  made  between  March 
1  and  April  30  (the  period  of  declaration  for  the  first  year) 
numbered  165.394.  from  whom  the  estimated  revenue  amoimted 
to  only  $4,450,000.  The  facts  may  be  briefly  set  forth  in  the 
following  table: 


RESULTS  OF  F-RENCH  LN'COME  TAX.  1916 


I: 


Class  of  Income 
$1,001  to  $2,000 
$2,000  to  $3,000 
$3,000  to  $4.00^ 
$4,000  to  $5,000 
Over  $5,000 


Declara-  Amount 

tions  Declared 

78.206  $116,981,625 

38.581  95.413.373 

17.163  S9.827.9o7 

9.243  41,824.2.13 

22.201  282,438.583 


Deductions 
Married      Dependents 
Persons    1  to  5    Over  S 

43,110      37.643      350 

26.229      31.918 


11.678 
6254 
14,599      19.251 


483 
15,190  413 
8.320      320 

866 


Estimated 

Amount 

of  Tax 

$54,000 

154,000 

196,000 

214,000 

3,830,000 


165.394    $596,485,781     101.870    112.322    2432    $4,450,000 


■'  t 


Another  .md  more  characteristic  tax  of  this  period  was  the 
war  excess  profits  tax  which  was  imix>sed  upon  exceptional  an-" 
additional  profits  made  during  the  war.'  As  first  proposed  '-y 
M.  Ribot  it  was  to  tax  only  those  profits  realized  between  August 
1  and  December  31,  1914.  But  as  finally  adopted  on  July  1. 
1916,  it  was  to  cover  profits  made  during  the  period  of  the  war. 
and  was  to  continue  for  twelve  months  after  cessation  o.  hostili- 
ties. The  average  net  profits  for  the  three  years  prior  to  August 
1,  1914,  were  taken  as  the  normal  base  for  determining  these, 
and  upon  the  excess  a  tax  of  50  per  cent  was  laid.  The  excess 
profits  realized  from  August  1,  1914,  to  December  31,  1915,  must 
be  declared  by  September  1,  1916.  Those  for  the  year  1916  must 
l)e  declared  in  the  first  three  months  of  1917,  and  similarly  for 

„V^^jT^r^  '5'=  '""'•  P*??*^?  J?'y  '•  '^'^'  '^  e'^«"  in  ^«'»«'  dc  Science 
et  de  Ugislahon  finanacre  (July-September.  1916V  XIV  3.  454-462  Jourual 
des  hconomisles,  January.  \916,  p.  l&i.  -r—^-    juumai 


h 


FRANCE 


93 


subsequent  years.  The  rate  of  taxation  was  increased  after  Sep- 
tember 30,  1916,  to  60  per  cent  of  the  taxable  profits  over 
$100,000.  Amounts  of  $1,000  or  under  were  exempt;  abate- 
ment was  allowed  for  borrowed  capital,  the  cost  of  raw  materials, 
rent,  foreign  taxes,  and  similar  items.  A  reduction  jiild  also 
be  claimed  for  bad  or  doubtful  debts,  for  depreciation  or  new 
installations.  Appeals  might  be  lodged  against  presumably  ex- 
cessive assessments. 

The  proposal  to  inipose  a  war  profits  tax  met  with  considerable 
opposition.'  The  Journal  des  Economistes  objected  to  the  tax 
because  it  was  retroactive.'  The  Paris  Chamber  of  Commerce 
stigmatized  it  as  "inquisitorial"  and  feared  it  would  frighten 
away  capital,  while  other  critics  insisted  that  it  was  impossible  to 
determine  the  profits  and  losses  of  business  before  the  cessation 
of  hostilities.  Against  all  such  criticism,  the  sufficient  answer 
was  the  growing  need  of  the  government  for  revenue. 

Other  taxes  which  were  passed  by  the  act  of  July  1.  1916, 

were : 

(1)  An  exceptional  war  tax  on  all  Frenchmen  within,  the 
military  a?e  limit  but  who,  for  one  reason  or  another,  were  noi 
called  to  the  colors.  The  tax  consisted  of  a  fixed  due  of  12 
francs  a  year,  and  a  surtax  of  25  per  cent  added  to  the  indi- 
vidual's income  tax.  The  machinery  for  collection  was  similar 
to  that  for  the  inccwne  tax. 

(2)  Grouped  taxes:  Certain  existing  taxes  were  doubled,  such 
as  those  on  mines,  carriages,  horses,  clubs,  billiard  tables,  etc. 

(3)  Securities:  The  special  tax  of  4  per  cent  on  the  revenue 
from  securities  was  raised  to  5  per  cent.    The  existing  tax  of 

5  per  cent  on  certain  classes  of  foreign  securities  was  raised  to 

6  per  cent. 

(4)  Colonial  products:  Special  taxes  were  imposed,  in  addi- 
tion to  the  existing  customs  duties,  on  a  large  number  of  articles 
of  foreign  production  such  as  coffee,  cocoa,  chocolate,  tea,  vanilla. 

1  The  opposition  to  additional  taxes  found  strong  expression  in  VBcono- 
misc  frai^is.  while  the  policy  of  taxation  as  opposed  to  loans  only  was 
vigorously  adv^cKated  in  Rct'ue  de  Science  et  de  Ug.shUon  fimncwrc. 

2  February,  1916.  p.  338. 


i 


11 


t^ 


94 


DIRKtT  AND  IMURECT  COSTS  OF  THE  WAR 


(5)    \  number  of  other  taxes  were  imposed  which  can  not  be 
particulanzed:  thus,  theaters  or  moving  pictures  and  other  places 

n  „  h  iT'"'  '"""  '"'■*''*"'*  '°  ^P^'^'  ^^^-^^  representing  as 
much  as  10  cents  a  seat:  and  as  much  as  25  per  cent  of  the  en- 
trance charges  m  the  highest  rates;  taxes  on  alcoholic  drinks  and 
mmeral  waters  were  also  raised,  while  a  new  tax  was  imposed 
ui>on  special  pharmaceutical  products. 

(6)   Rates  were  raised  for  letters,  telegrams,  telephone  calls 
and  money  orders,  and  the  whole  postal  s4em  wasTevi'd 

A  number  of  the  taxes  imposed  by  the  law  of  July  1    1916 
were  not  to  go  into  effect  until  January  1    1917  ' 

The  act  of  December  30.  1916,'  imposed  a  number  of  addi- 
tional taxes  and  raised  in  a  drastic  manner  the  rates  of  those 
already  m  existence,  particularly  the  income  tax.  which  under 
tie  act  of  July   1..   1915.  proved  disappointing  as  a  revenue 
producer     Little  could  be  expected  from  it  because  the  exemjv 
t  ons  and  deductions  were  so  liberal  and  the  rates  so  low     Bui 
It  was  novy  greatly  modified  by  the  acts  of  December  30.  1916 
and  of  Febnaarj.  25.  1917.  in  order  to  make  it  more  lucrative' 
It  was  hoped  that  these  changes  would  increase  the  annual  vield 
rom  $4,450,000  to  $30,000,000  or  $32,000,000.    UnderThe'::' 
law  the  minimum  exemption  was  reduced  from  $1,000  to  $600 
This  ^^■ns  expected  to  double  the  number  of  taxable  incomes" 
a  t  ough  the  taxaWe  base  of  course  would  not  be  cor:  :;:i' 
ngly  increased.    Changes  were  also  made  in  the  method  oVcal- 
culatmg  the  taxable  income.     Incomes  between  $600  and  $1  600 
Z'^^4^'1T"'^  as  equivalent  to  one-tenth;  between  $1,600 
anr  $_.400  at  two-tenths;  between  $2,400  and  $3,200  at  three- 

ndls S^Tf  •'''  r '  t''"^  ''  ^"'^-^^"^'^^  =  ^^--  HO(i 
and  $8,000  at  five-tenths;  between  $8,000  and  $12,000  at  six- 

$16,000   and   $20,000   at   eight-tenths;   between   $20,000   and 

^nJr:,rZd'u:'ie^  TS^f  !?  iTV!"-  Pf^'-  ^-mber  31.  1916. 
March.  1917),  XV.  1.  123-146  Legtslahon  fimncicre   (January- 


FRANCE 


95 


$30,000  at  nine-tenths,  and  above  $30,000  the  whole  income  was 
to  be  counted  as  taxable.  At  the  same  time,  the  rate  was  raised 
to  10  per  cent.  Other  changes  were  introduced  into  the  tax 
in  order  to  secure  sharper  control.  Under  the  original  act  of 
1914  the  tax  rested  upon  the  declaration  of  the  taxpayer,  but 
this  declaration  was  voluntary.  The  law  of  December  30,  1916, 
introduced  several  changes  which  may  be  summarized  as 
follows :  * 

1 — The  declaration  was  made  obligatory. 

2 — A  penalty  of  10  per  cent  was  added  for  neglect  to  make  a 
declaration. 

3 — The  taxpayer  must  indicate  in  his  declaration  the  separate 
items  which  made  up  his  income. 

A — The  declarations  must  be  verified  by  the  inspector,  but  he 
can  not  require  the  taxpayer  to  produce  his  books.  He  can  only 
ask  for  explanations. 

5 — Penalties  are  provided  for  the  taxpayer  who  will  not  fur- 
nish these  explanations. 

6 — The  taxpayer  whose  income  falls  below  the  taxable  mini- 
mum may  claim  exemption. 

7 — Finally,  by  an  amendment  of  February  25,  1917,  the  tax- 
payer was  granted  three  months  from  January  1  to  March  31,  in 
which  to  file  his  declaration. 


(I 


■  H 

U 


m 


Banking  and  Currency,  1917 

During  the  year  1917  the  same  general  policy  was  followed 
which  had  been  already  laid  down.  As  the  burden  of  the  war 
became  greater,  it  was  increasingly  difficult  to  institute  new  taxes, 
so  that  continued  dependence  upon  loans  was  necessary.  The  ex- 
penditures were  mounting  steadily  and  every  available  resource 
had  to  be  drawn  upon.  The  advances  by  the  Bank  of  France 
continued  throughout  the  year,  mounting  from  $1,480,000,000 
at  the  beginning  of  the  year  to  $2,500,000,000  on  December  27, 
an  increase  of  $1,080,000,000.     As  usual,  these  advances  were 

1  Just  Haristoy :  "L'Impot  sur  le  Revenu,"  in  Revue  de  Science  et  de 
Legislation  financicrc  (January-March,  1917),  XV,  1,  55. 


96 


DIRECT  AND  INDIRECT  COSTS  OF  THE  WAR 


I* 


made^,  the  lorn,  o,  note  issues,  which  increased  from  $3,335.- 
UOO.OOO  at  the  beginning  .>f  the  year  to  $4,467,200,000  on  De- 
cember    /this   progressive   expansion    necessitating   repeated 
ra.smg  of  the  legal  limit  upon  maximum  note  issues.    When  the 
year  opened,  this  limit  stood  at  $3,600,000,000.    On  September 
10  .t  was  raised  to  $4,800,000,000.  the  last  named  figure  being 
just  double  the  maximum  fixed  at  the  outbreak  of  war'    The 
state  thus  gave  its  legal  approval  to  continued  issues  of  notes  by 
the  Bank  of  Franc^indeed.  the  en...  .ous  e.xpansion  of  bank 
notes  was  directly  attributable  to  the  a  ..ances  to  the  state  itself 
Uurmg  the  year  the  bank  not  only  placed  at  the  disposal  of  the 
^e  $,.080^000.(X)0  in  advances.\'ut  it  also  disctmed  ^2^7- 
000.000  m  French  Treasury  bills  to  enable  the  state  to  make 
acl\ances  to  foreign  go\ernments. 

E.XPENDITURES,  1917 

One  of  the  incidental  results  of  war  finance  has  been  the 
aJnaost    complete    disregard    of    regular    budgetary    procedure. 
Owing  to  the  system  of  asking  for  votes  of  credit  at  periodic 
intervals,  there  were  now  practically  four  budgets  introduced, 
one  for  each  quarter  of  the  year.    M.  Ribot.  in  a  speech  before 
the  Chamber  of  Deputies  in  1916.  urged  a  return  to  the  one- 
budget  method.=     He  returned  to  this  point  when  introducing 
the  estimates  for  the  last  quarter  of  1917.  when  he  promised  this 
would  be  the  last  occasion  on  which  provisional  credits  would  be 
asked,  at  any  rate  for  civil  expenditures.     Thereafter,  he  said, 
the  government  intended  to  introduce  an  annual  budget  that 
would  include  all  civil  expenditures  and  all  payments  in  connec- 
tion with  the  public  debt,  so  that  only  military  expenses  due  to 
war  would  be  included  in  the  quarterly  credits.    This  pledge  was 
earned  out  by  the  passage  of  the  budget  on  June  27    1918— 
the  first  budget  passed  as  a  whole  since  the  beginning  of  the  war 
Another  interesting  innovation  was  made  early  in  the  year 

J  L'liioiwmislc  fmiifais.  September  15.  1917 

-  lu-niiomist  (London!.  December  23.  1916,  p.  1177. 


1 


FRANCE  97 

1917  in  the  presentation  of  the  public  accounts.^  Pursuant  to 
the  promise  of  the  Finance  Minister  to  the  Chamber  of  Deputies, 
the  Chief  Public  Accoitntant  for  the  first  time  published  a  state- 
ment showing  the  situation,  on  January  31,  in  regard  to  the 
credits  for  1916  and  for  the  first  month  of  1917 : 

Credits  for  1916  amounted  to l^'fS'lS'SSX 

Authoriied  expenditure  amounted  to I'JeT "Inft'nnn 

Unauthorized  expenditure  amounted  to l,351,ZUO,UUU 

The  large  amount  of  unauthorized  expenditures  shows  the 
extent  to  which  in  times  of  crises  constitutional  guaranties  and 
legislative  control  are  set  aside  and  the  degree  to  which  the 
Executive  power  was  using  its  authority  with  no  other  legal 
right  than  necessity. 

Another  change  was  made  in  the  method  of  handling  accounts 
due  to  the  delays  incident  to  the  enormity  of  the  transactions. 
Previous  to  the  war,  the  accounts  for  the  calendar  year  had 
closed  on  March  31  of  the  succeeding  year,  but  since  the  outbreak 
of  war  the  settlement  was  delayed  four  months  with  the  resuh 
that  now  the  accounts  for  the  calendar  year  were  not  closed 
until  the  following  July  31. 

In  the  meantime,  expenditures  were  mounting  steadily.  The 
total  credits  granted  for  the  first  nine  months  of  1917  amounted 
to  $5,796,400,000,  but  the  appropriations  for  the  fourth  quarter 
aggregated  $2,430,000,000,  or  almost  half  as  much  again.  Sup- 
plemental credits  were  voted,  the  total  finally  reaching  $8,374,- 
185,000,  which  averaged  during  the  year  a  daily  expenditure  of 
$22,852,000.    This  amount  was  distributed  as  follows: 

Military  and  exceptional  civil  service ^'Sii'lw'SS 

Expense  of  debt  «7%'nm 

Ordinary   civil   budget aa/,^5U,WA; 

$8,374,185,000 

This  gave  a  total  expenditure  to  the  end  of  1917  of  $21,303,- 
829,000,  of  which  it  was  estimated  that  $15,200,000,000*  were 

^Economist  (London),  March  24,  1917,  p.  553.  .    .      ^.  •,  o 

2  Report  of  the  Budget  Committee  of  the  Chamber  and  the  Civil  Service 
budget  of  1918,  Doc.  No.  4133,  Chamber  of  Deputies. 


I    ^0 


98 


DIRECT  AND  INDIRECT  COSTS  OF  THE  WAR 


purely  military.  The  normal  military  expenses  of  the  peace 
budget  would  have  been  $l,540,000,Oo6.  and  the  credits  to  Allies 
amounting  to  $600,000,000  would  make  the  actual  direct  cost  of 
the  war  to  France  about  $13,060,000,000.  In  addition  to  this, 
the  indirect  war  expense,  including  such  items  as  allowance  to 
families  of  enlisted  men,  assistance  to  war  victims  and  invaded 
departments,  etc..  was  estimated  at  $2,238,000,000,  and  lastly, 
the  service  of  the  war  debt  was  put  at  a  total  to  that  date  of 
$2,139,000,000.  giving  a  total  of  direct  and  indirect  costs  of 
$17,443,600,000. 

The  great  increase  in  expenditures  which  is  shown  in  these 
figures  must  be  attributed  not  merely  to  the  military  operations 
themselves,  but  also  to  the  rise  in  the  price  of  raw  materials  and 
foodstuflfs  and  other  articles  necessary  for  the  troops,  the  in- 
crease in  salaries  allowed  to  state  officials,  and  to  families  of 
mobilized  men,  owing  to  the  increased  cost  of  living;  and  lastly, 
to  the  steady  increase  in  the  interest  charge  on  the  public  debt.* 
The  total  exi)enses,  civil  and  militarj-.  as  reflected  in  -  otes  of 
credit,  were  now  over  $21,000,000,000. 

Borrowings,  1917 

Of  the^credits  of  $8,374,185,000  granted  for  the  year,  no  less 
than  $7,780,000,000  were  raised  by  unfunded  debt.""  About 
one-seventh  of  this  was  advances  by  the  Bank  of  France,  which 
increased  from  $1,480,000,000  at  the  end  of  1916  to  $2,500,- 
000,000  on  December  27.  1917.  The  bans  de  la  defense  na- 
tionalc,  which  had  been  suspended  at  the  time  of  the  second  war 
loan,  were  resumed  again  in  February,  1917.  The  total  botis 
in  circulation  January  31.  1917,  were  $2,684,297,800  and  bv 
November,  just  before  the  third  loan,  they  totaled  some  $4,000.- 
000,000.  The  Treasury  also  resumed  the  issue  of  the  5  per  cent 
national  defense  obligations  on  March  20,  the  terms  being  similar 
to  those  of  the  previous  issues,  and  just  before  the  loan  in  Novem- 
ber there  were  some  $60,000,000  of  these  sold.     In  addition  to 

"  M.  Thierry,  in  L'Economiste  Europeen,  September    1917 
=  5/ahj/,  October  13,  1917,  p.  606. 


FRANCE 


99 


.;.         I 


the  Treasury  bills  and  short  term  bons,  a  new  kind  of  security  was 
issued  in  March,  1917,  which  may  be  called  obligatioti-bons  for 
it  united  the  characteristics  of  the  two  previous  securities.* 
They  were  emitted  at  par,  bore  5  per  cent  interest,  and  were  re- 
payable at  the  end  of  any  six  months'  interest  period.  If,  how- 
ever, the  purchaser  held  them  until  the  end  of  the  five  year 
period,  he  received  a  bonus  of  half  a  year's  interest.*  By  the 
end  of  the  year,  December  31,  1917,  there  were  outstanding 
some  $4,000,000,000  of  these. 

During  this  year  France  borrowed  abroad  to  a  much  greater 
extent  than  during  any  preceding  period.  On  March  22,  1917, 
books  of  subscription  were  opened  abroad  by  J.  P.  Morgan  & 
Company  in  New  York  to  a  second  $100,000,000  collateral  loan. 
This  loan  was  in  the  form  of  5  >^  per  cent  convertible  two  year 
gold  notes  offered  to  the  public  at  99,  yielding  slightly  over  6 
per  cent.  It  was  dated  April  1,  1917,  and  secured  by  the  pledge 
of  collateral  of  an  aggregate  value  of  $120,000,000  in  neutral 
government  securities  or  American  or  Canadian  industrials. 
The  loan  was  oversubscribed  in  four  days.  During  the  earlier 
part  of  the  year  France  also  placed  industrial  credits  in  United 
States  through  Bonbright  &  Company,  Inc.,  to  the  extent  of  $15,- 
000,000  which  was  secured  by  French  Treasury  bills.  Treasury 
bills  were  also  sold  in  England  in  an  amoimt  estimated  at  about 
$600,000,000. 

The  entrance  of  the  United  States  into  the  war  opened  other 
resources  to  France,  as  well  as  to  other  Allies  of  the  Entente,  in 
the  form  of  direct  loans  to  the  French  Government  by  the 
Government  of  the  United  States.  Advances  were  made  by  the 
United  States  to  pay  for  supplies  purchased  in  this  coimtry  by 
France.  The  United  States  furnished  Treasury  bills  for  this  pur- 
pose, in  return  for  which  it  received  from  the  French  Govern- 
ment its  securities  to  an  equal  amount.  France  had  placed  in 
United  States  up  to  April  1,  1917,  the  following  loans: 

1  Journal  des  Economiste,  February,  1917,  p.  279. 
'^Journal  OMciel,  February  11,  1917. 


K      ., 


100  DIRECT  AND  INDIRECT  COSTS  01    THE  WAR 

October.   1915,   Anglo-French   loan. ^mnoo'oOO 

July,  1916,  American  Securities  Co..  loan w  nm'«m 

September.  1916,  collateral  loan imnnn'nnft 

April  1,  1917,  collateral  loan •••••••,•. H^'ono'oOO 

Cities  of  Paris,  Lyons,  Bordeaux,  Marseilles 65'o0o'00O 

Industrial    credit?    

All  of  these  loans  had  been  subscribed  by  private  banks,  corpora- 
tions or  individuals,  however,  but  the  government  advances 
made  after  the  entry  of  United  States  into  the  war  on  April  6. 
1917,  differed  from  the  former  private  loans  in  both  character 
and  amount.  During  the  year  1917  the  advances  by  the  United 
States  Government  amounted  to  $1,285,000,000. 

The  great  bulk  of  short  term  borrowing  during  1917  made 
inevitable  the  third  war  loan.     Accordingly,  this  was  issued  in 
November,  1917.'     It  was  a  4  per  cent  perpetual  rente  issued 
at  68.60  for  fully  paid  up  subscriptioijs  and  at  69.20  for  sub- 
scriptions paid  in  instalments.     For  the  former  class  the  yield 
was  5.83.    The  loan  was  limited  to  $2,000,000,000  of  real  capital 
or  $2,600,000,000  of  nominal  capital.    If  it  exceeded  this  amount, 
the  small  subscribers  for  not  more  than  $60  would  receive  their 
subscriptions  in  full,  while  higher  amounts  would  be  subject  to 
allocation.     The  new  loan  was  exempt  from  the  income  tax. 
Various  measures  were  taken  at  the  time  of  the  issue  of  this  loan 
to  maintain  its  price.     It  was  made  acceptable  at  its  price  for 
payment  of  the  extraordinary  tax  on  war  profits  and  a  special 
account  was  opened  at  the  Ministry  of  Finance  for  the  purchase 
of  these  bonds.    A  fund  was  constituted  into  which  $12,000,000 
was  to  be  paid  monthly  until  there  was  a  surplus  of  $72,000,000. 
The  fund  was  to  be  used  for  the  redemption  of  the  new  loan  and 
the  previous  5  per  cent  loans  of  1915  and  1916,  but  in  no  case 
was  a  higher  price  to  be  paid  than  the  rate  of  issue. 

The  result  of  the  loan  was  more  than  satisfactory,  the  sub- 
scriptions amounting  to  $2,960,600,000  nominal,  and  $2,034,- 
200,000  actual,  of  which  half  represented  new  money.  This  did 
not  include  the  foreign  subscriptions.  As  in  the  previous  loans, 
bom,  obligations,  and  the  remnant  of  the  prewar  3>^s  were  ad- 

iThe  text  of  the  law  is  given  in  the  Econoviist  (London),  November  10, 
1917,  p.  760. 


FRANCE  JOl 

mitted  to  conversion.  The  obligations  outstanding  just  before 
the  loan  totaled  some  $60,000,000  and  of  these  about  two-thirds 
were  converted  into  the  loan.  Bans  and  obligations  together 
amounted  in  November.  1917,  just  before  the  loan,  to  some 
$4,600,000,000;  by  December  31,  they  had  sunk  to  $4,000,- 
000,000.  showing  that  the  difference  of  alx>ut  $600,000,000  had 
been  taken  up  by  the  new  loan. 

The  borrowings  of  France  during  1917  may  be  summarized  as 

follows : 

FRANCE.  BORROWINGS.  1917 
F  rm  Amount 

Advances  from  Bank  of  France........... ^'•^'Soo'mo 

Collateral  loan  in  United  SUtes  April,  1917. T^'So'oOO 

Banking  credit.  Bonbright  &  Co..  United  States m  MO'OOO 

Industrial  credits  in  United  States i  ?«'S5)'nnO 

United  States  Government  advances {Im'nnn'nm 

Bans  de  la  difcnse  nationale.  net 6o'00o!00O 

Obligations,   net    2  QOO'OOO'OOO 

Obligations-bons,  net I'snn'noo'oOO 

War  loans  November,  1917.  new  money "rtm'ono'mo 

Foreign  Treasury  bills  (England,  etc.) • '     ""'"W'"** 

$7,980,000,000 

In  respect  to  the  foreign  loans,  M.  Klotz  emphasized  this  in 
the  preamble  to  his  budget  for  the  last  quarter  of  1917,  saying 
in  the  first  four  months  of  1917  France's  debtor  account  abroad 
had  increased  by  $505,800,000.  and  by  July  th  increase  had 
risen  to  $622,000,000,  making  the  foreign  indebtedness  on  July 
31,  1917,  amount  to  $2,700,000,000.  He  expressed  anxiety  on 
account  of  the  growing  proportions  of  the  foreign  debt,  and 
urged  strictest  economy  in  goods  purchased  abroad.  By  the  end 
of  the  year,  the  foreign  debt,  as  reflected  in  the  following  item- 
ized statement,  had  grown  to  $4,216,063,260,  of  which  the  prin- 
cipal amounts  were  held,  $2,000,000,000  in  England  and 
$1,800,000,000  in  United  States,  goremmental  and  private. 


n  \ 


i 


102  DIRECT  AND  INDIRECT  COSTS  OK  THE  WAR 

DEBT  OF  FRANCE.  DECEMBER  31,  1917t 
Form  . 

Internal:  ^'~'"'* 

3  per  cent  rente...       $3.949.(«2.153 

5  per  cent  rente.  1915 3.(M0,991,810 

5  per  cent  rente,  1916 2,301.600,000 

AmortizaUe  3  per  cent  rentes 627345400 

Other  debts  of  Finance  Minister..       525.208.570 

n.1,  .  J  u  ....  $10,444,737,933 

Other  civil  debt*  or  habilities. . ..       845,607200 

Total  internal  fixed $11^90.345.133 

"«>«»'"«    7.526.783.260 

Sternif ""'  *'•*'* $18,817,128,393  $18,817,128,393 

?;«<•.  $1.982340,000 

P'o**'"«    -r. 2233.243.260 

4216,083260  4216,083260 

c      •      J  ..  J  $23,033211,653 

Foreign  debt  is  made  up  as  follows :  t~,      ,-    , 

Fixed: 

V-  f  ^-  Treasury $1,333,800,000 

Anglo-French  loan   285.300.000 

Advances  U.  S.  banks 1 14,000,000 

City  of  Pans  loan  in  U.  S.  A 57.000.000 

Bordeaux,  Lyons,  Marseilles. 

in  U.  S.  A. 41,000.000 

American  1917  loan 115.000.000 

Japanese    29.500.000 

„      .  $1,975,600,000  Interest  thereon   $90240.000 

Floating: 

Treasury  bills  in  English  Treasury  $1,683,780,000 

Treasury  bills  in  Bank  of  England  363.160,000 

Treasury  bills  sold  in  England..  S0.44O.000 

Industrial  credits  in  U.  S.  A 57.000.000 

Treasury  bills  in  Japan 15.480.000 

Bank  credits  in  Spain 20.800.000 

Sweden    15,600.000 

Norway    17.800,000 

Holland    5,860,000 

Argentina 2,640,000 

Switzerland  ....  680,000 

$2233,240.000  Interest  thereon  $221,196,000 
The  above  does  not  include  the  1917  (December)  war  loan. 

'  Statesman's  Yearbook,  1918. 


FRANCE  lOS 

Taxation,  1917 

The  transactions  for  the  year  1917  were  as  follows: 

Expenditure    i;-^iJJ.-^-^^*'^^^ 

Rtytnnt   ^i-SS'^'SS 

LoMif    7.980.000,000 

While  it  is  evident  from  the  figures  just  given,  considered  in 
connection  with  the  deficits  in  taxation  during  1914,  1915  and 
1916,  that  France  was  relying  wholly  on  loans  to  defray  the 
cost  of  the  war,  she  was  now  making  a  strong  effort  to  increase 
revenues  from  taxaticwi  to  sufficient  proportions  to  cover  the  civil 
budget  and  service  of  the  war  debt.  Her  revenues  during  1917 
failed  to  do  even  this,  being  $1,082,900,000,  and  debt  charges 
being  $1,529,000,000.  The  acts  of  July  and  December  (1916) 
had  broadened  the  basis  of  taxaticm  by  the  imposition  of  a  num- 
ber of  new  taxes  and  by  raising  the  rates  of  the  old  ones,  all  of 
which  went  into  effect  on  January  1,  1917,  except  the  tax  on 
l^armaceutical  specialties  which  was  to  become  effective  by  de- 
cree. As  these  revenues  proved  to  be  greater  than  the  original 
estimates  from  mcmth  to  month,  the  hope  gained  ground  that  the 
'nopedfor  increase  of  $117,000,000  over  the  receipts  of  1916 
light  in  fact  be  as  much  as  $264,000,000,  distributed  as 
follows : 
Source  Amount 

Increase  in  income  tax. im'nm'nm 

Tax  on  excess  war  profiU sSS'SK 

Exceptional  war  l.x   ,yi55('nnft 

New  direct  taxes.   1917 JI'jSS'SS 

New   indirect  taxes,   1917 ?5'^'SR 

Increased  tobacco  duty JS'lJK'SIi 

Increased  posUl  charges,  etc i^.wu.uw 

$263,800,000 

Some  of  these  estimates  seem  somewhat  exaggerated,  since  the 
preamble  to  the  budget  proposals  for  the  fourth  quarter  of  1917 
stated  that  up  to  that  time  the  stamp  duties,  yield  from  the  tobacco 
monopoly,  and  post,  telegraph  and  telephone  service  still  showed 
a  deficit  from  the  normal  prewar  condition.*  Receipts  from 
^Economist  (Londo.i).  October  6.  1917,  p.  489. 


!      '^1 


ill 


UM 


DIRECT  AND  INDIRECT  COSTS  OF  THE  WAR 


lit; 


sugar  showed  an  increase  over  normal  of  about  i5  per  cent; 
estate  duties  of  35  per  cent;  and  customs  of  129  per  cent.  It 
must  l)e  rememlwred,  however,  that  much  of  the  expansion  of 
I'rcnch  trade  antl  of  customs  receipts  was  due  to  the  importation 
of  war  supplies  and  was  consequently  rather  artificial.  In  the 
case  of  indirect  taxes  on  mineral  waters,  theaters,  coffee,  etc., 
the  estimated  yield  was  greatly  exceeded.  The  gradual  growth 
of  the  actual  yield  of  taxation  in  France  back  to  its  prewar  level, 
and  finally  its  progression  in  the  first  half  of  191"  to  an  increase 
above  normal,  as  analyzed  in  the  budget  proposals,  are  shown  in 
the  following  table: 

Period 

Auk.  1  to  Dec.  31,  1914. 
Jan.  1  to  July  31,  1915. 
Aug.  1  to  Dec.  31,  1915. 
Jan.  1  to  July  31,  1916. 
Aug.  1  to  Dec.  31,  1916. 
Jan.  1  to  July  31,  1917. 

The  yield  from  the  amended  income  tax  fur  the  yea.  '  ?1 7 
proved  to  be  greater  than  estimated.  In  1916  there  ha-  been 
165.394  declarations,  showing  a  total  income  of  $596,500,000, 
and  yielding  a  tax  of  $4,450,000.  In  1917,  when  the  exemptions 
were  lowered  from  $1,000  to  $600  and  the  declarations  made 
obligatory,  the  declarations  rose  by  more  than  50  per  cent  to 
367,554,  with  a  total  declared  income  of  $1,170,890,715,  and  a 
Ux  yield  of  $36,652,000  as  shown  in  the  following  table : 

RESULT  OF  INCOME  RETURNS  IN  FRANCE  IN  1917 


Actual 

Actual 

Normal 

Increase 

is  Per  Cent 

Yield 

Yield 

Decrease 

from  Normal 

of  Normal 

$193,732,600 

$336,746,000 

—42.46 

57.54 

.366,657,800 

461,919,000 

-20.62 

79.38 

268349,200 

338,680«» 

-20.61 

79.38 

420,100,400 

473,151.600 

-lUl 

88.79 

371,984,000 

388,523,0a) 

-  9.88 

95.87 

563,226,000 

473,151.600 

+19.04 

119.08 

Deductions 

Decla- 

Revenue 

No.  Dei) 

lendents 

ToUl 

Income 

rations 

Declared 

Married  Under  5  Over  5 

Yield 

$600- $1,600 

182.673 

$197,076,617 

75,972 

55,803 

382 

$430,000 

1,601—    2,400 

75,963 

146.823,120 

51,119 

60,328 

244 

644.000 

2,401—    3.200 

35,437 

97,394,513 

23,710 

32,299 

727 

794,000 

3,201—    4,000 

19,655 

70,444,719 

13,2a!i 

18,479 

521 

878,000 

4.001—    8,000 

32,771 

178,967.975 

21,791 

31,035 

1,033 

4,060,000 

8,001—  12,000 

93)1 

88,755,099 

6,184 

9,037 

345 

3,046,000 

12,001-  16,000 

3,868 

53,021,594 

2,562 

3,780 

188 

2,210,000 

16.001—  20,000 

2,271 

40,169,954 

1,535 

2,158 

105 

1,918,000 

20,001—  30,000 

2,665 

64,615,745 

1,781 

2,625 

133 

3,658,000 

Over  30,000 

3,050 

233,621,379 

2,060 

3,092 

192 

19,014,000 

367,554  $1,170,890,715  199.999  218.636  3,870  $36,652,000 


PRANCE 


105 


At  the  beginning  of  the  year  1917,  M.  Ribot  proposed  that 
three  antiquated  and  oppressive  old  taxes  be  cancelled,  namely, 
the  tax  on  doors  and  windows,  the  business  tax  (patentes)  and 
the  inhabited  house  tax.  To  compensate  for  this  loss  of  revenue, 
he  proposed  two  fresh  taxes,  ( 1)  a  personal  tax  cf  five  francs  on 
each  person  with  a  private  income,  and  (2)  an  increase  of  20 
per  cent  in  the  general  income  tax,  raising  it  from  10  to  12  per 
cent.  These  proposals  were  acted  upon  and  formed  the  subject 
of  debate  during  the  next  session  of  the  Assembly.  The  law  as 
finally  passed  on  July  31,  1917,  marked,  according  to  Professor 
Gaston  Jeze,  the  beginning  of  a  "new  fiscal  era."  '  The  abolition 
of  the  three  taxes  mentioned  was  carried  through,  thus  getting 
rid  of  most  unequal  and  vexatious  imposts.  Their  suppression, 
however,  applied  only  to  the  porti'>n  of  these  toxes  which  was 
collected  for  the  account  of  the  state. 

A  new  annual  tax  mi  business  profits  was  imposed.  The  rate 
of  the  tax  was  4»^  per  cent  but  it  was  graduated  in  characteristic 
French  fashion.  If  the  profits  did  not  exceed  $500  the  tax  was 
laid  on  one  quarter  of  the  amount;  on  profits  between  $500  and 
$1 ,000  the  tax  was  imposed  on  one-half  of  the  amount ;  profits 
exceeding  $1,000  were  taxed  in  full.  Where  the  total  profits  did 
not  exceed  $300  no  tax  was  levied. 

A  special  tax  was  imposed  on  the  turnover  of  retail  business 
when  the  turnover,  after  certain  deductions,  exceeded  $250,000. 
The  contributions  were  fixed  at  the  following  rates : 


Tax  per  1,000  francs 
1  franc 
2 
3 
4 
5 


On  turnover  between— 

1,000,000  and      2,000,000  francs 

2,000,000  10,000,000 

10,000,000  100,000,000 

100.000,000         200,000.000 

Over  200,000.000 


Other  new  taxes  enacted  by  the  above  law  were  a  tax  on  agri- 
cultural profits  and  taxes  on  salaries  and  the  liberal  professions. 
The  rate  of  these  taxes  was  fixed  at  3^  per  cent  in  each  case. 
All  of  the  above  taxes  were  to  take  effect  January  1,  1918. 

i  Revue  de  Science  et  de  Ugislation  financiire    (July-September,   1917), 
XV.  3.  448. 


106 


DIRECT  AXD  INDIRECT  COSTS  OF  THE  WAR 


iw. 


Expenditures,  1918 

The  total  credits  voted  for  this  year  aggregated  $10,671,- 
000,000,  and  abundantly  evidenced  the  growing  cost  of  the  war. 
The  civil  br.dget  was  first  introduced  in  November,  1917.  but 
before  it  had  passed  the  Chariber  in  April  the  costs  had  so  in- 
creased as  to  necessitate  a  revision,  and  before  it  was  finally 
passed  in  June,  1918,  a  still  further  revision  had  to  be  made, 
increasing  the  estimated  expenditures,  and  decreasing  the  esti- 
mated receipts,  the  latter  due  to  loss  occasioned  by  delay  in  inv 
posing  the  taxes  upon  which  the  November  estimate  was  based. 
From  its  introduction  to  its  passage,  these  changes  were: 


ii  ! 


Expenditure 
Receipts 

Surplus 


November  Estimate 
$1,561,781,488 
1,561,802,786 


April  Revision 

$1,673,283,631 

1,674,220,672 


Final  Figures 

$1,672,291,897 

1,642,572,428 


$21,296 


$937,041    Deficit    $29,719,469 


Thus  an  estimated  surplus  of  $21,298  was  transformed  by  the 
delay  into  a  deficit  of  $29,700,000.  In  order  to  avoid  further 
loss,  the  Senate  took  the  unusual  step  of  initiating  new  taxes 
itself  and  referring  them  to  the  Chamber.  This  deficit  was  to 
be  made  up  by  $60,000,000  proposed  new  revenues  to  be  derived 
particularly  from  the  levy  of  taxes  on  transportation,  of  docking 
taxes,  and  from  the  su^  oression  of  fiscal  frauds.  At  the  end  of 
the  year  1918.  it  was  estimated  that  the  actual  disbursements  of 
the  government  for  all  purposes  were  20  per  cent  less  than  the 
authorized  expenditures,  or  $8,537,800,000,  but  in  spite  of  this 
decrease  in  expenditure  there  was  a  real  increase  in  costs.  After 
the  armistice  the  huge  exiienditure  attendant  upon  demobilization 
and  reconstruction  of  in\aded  districts  became  hopelessly  inter- 
mingled, and  purely  war  costs  can  not  be  precisely  traced. 

In  bringing  in  the  civil  budget  for  the  year  1919,  however. 
Minister  of  Finance  Ribot  stated  that  it  would  involve  $1,785,- 
000.000  of  expenditure,  exclusive  of  interest  cm  the  1918  loan 
which  would  amount  to  about  $228,000,000;  that  interest  on  the 
advances  of  the  bank  would  amount  to  $100,000,000  to  $120,- 


I  i 


FRANCE 


10/" 


OOO.CXX);  reconstruction  expenses,  which  it  was  expected  to  raise 
by  a  huge  loan,  would  carry  perhaps  $300,000,000  interest 
charges,  which  with  added  ordinary  burdens,  pensi(His,  etc.,  would 
make  the  postwar  budget  total  $3,400,000,000. 

Banking  and  Currency,  1918 

The  charter  of  the  Bank  of  France  would  expire  on  December 
31,  1920,  and  its  extension  for  twenty-five  years  was  brought 
before  the  l^slative  body.  Various  proposals  were  made,  such 
as  (a)  that  it  should  divide  its  surplus  profits  after  passing  24 
per  cent  evenly  with  the  state;  (b)  that  it  should  be  nationalized; 
(c)  that  tlie  period  of  the  franchise  should  be  shortened  to  the 
end  of  the  war,  or  for  fifteen  years,  etc.  The  government's  pro- 
posal that  the  present  convention  between  the  bank  and  itself 
should  be  extended  for  another  twenty-five  years  was  finally 
passed  by  the  Chamber  of  Deputies  on  July  11,  1918,  by  a  vote 
of  325  to  137,  and  became  law  on  December  20,  1918.  The 
convention  granted  the  bank  the  sole  right  of  issue  in  France. 
It  is  difficult  to  see  how  a-y  other  course  could  have  been  pursued 
at  this  time,  as  the  govemiiient  was  depending  so  largely  upon 
the  Bank  of  France  for  assistance  in  financing  the  war. 

The  year  1918  saw  no  diminution  of  the  responsibilities  of 
the  bank.  This  was  evidenced  by  the  passage  on  June  6,  1918, 
of  an  act  increasing  by  $600,000,000  the  amount  which  the  bank 
might  loan  to  the  government.  By  the  end  of  July,  1918,  these 
advances  amounted  to  $3,780,000,000,  or  a  net  increase  of 
$1,640,000,000  during  the  past  twelve  months.  As  usual,  the 
advances  to  the  state  which  amounted  to  $1,080,000,000  during 
the  year  1917,  and  to  $930,000,000  net  during  the  year  1918, 
necessitated  increases  in  the  note  issues.  These  stood  at  $5,829,- 
600,000  at  the  end  of  the  fourth  year  of  war  (July  26,  1918) 
and  at  $6,049,800,000  on  December  26.  The  successive  increases 
made  necessary  the  extension  of  the  legal  maximum  from  time 
to  time,  in  February  the  limit  being  set  at  $5,400,000,000;  in 
March,  1919,  owing  to  the  large  advrinces  made  by  the  bank  to 


i     :  hi 
i       ill 


108 


DIRF.CT  AND  IXDIRECT  COSTS  OF  THE  WAR 


ft 

I 


l^ii 


redeem  the  German  mark  in  Alsace-Lorraine  at  its  franc  value, 
t'..j  legal  limit  was  increased  to  $7,200,000,000,  and  finally,  in 
May,  1919,  under  a  pledge  that  it  would  mark  the  limit  of  these 
extensions,  a  law  was  passed  placing  the  limit  upon  advances  to 
the  state  at  $5,400,000,000,  and  on  note  issues  at  $8,000,000,000. 
This  act  called  forth  much  adverse  criticism,  and  financial  and 
economic  journals  expressed  concern  over  the  ability  of  the  bank 
to  resume  sptxie  payments  for  many  years  to  come.  At  the  time 
of  its  passage,  the  actual  advances  to  the  state  stood  at  $4,500,- 
000,000,  tlius  permitting  a  further  increase  of  $900,000,000,  and 
note  issues  stood  at  $6,795,000,000,  permitting  of  an  increase  of 
$1,205,000,000.  Against  this,  France  then  held  gold  and  bullion, 
at  home  and  abroad,  to  a  total  of  $1,505,110,000  (May  1,  1919). 

In  the  report  of  the  bank  for  the  year  1918,'  it  shows  as  its 
largest  asset  $3,430,000,000  advan  ed  to  the  state,  and  French 
treasury  bills  discounted  by  the  k..  k  and  advanced  for  the  state 
to  allied  governments  of  $705,200,000,  government  obligations 
being  60  per  cent  of  the  bank's  total  assets ;  note  circulation  form- 
ing 90  per  cent  of  the  bank's  total  liabilities.  The  total  loss  of 
gold  by  the  bank  during  the  war  was  $604,400,000,  of  which 
$.^91.00'' 000  was  shipped  to  England,  and  prior  to  1917  gold 
was  shipped  to  United  States  in  large  quantities  to  buy  exchange 
on  England.  During  the  war,  the  state  had  repaid  to  the  bank 
from  the  proceeds  of  popular  loans,  a  total  sum  of  $1,770,000,000. 

While  not  all  of  the  note  issues  were  added  to  the  circulation, 
as  an  enormous  quantity  of  notes  was  hoarded  by  the  people, 
while  the  accumulation  of  gold  was  replaced  by  a  note  increase, 
and  even  allowing  for  the  necessary  inc. ease  of  the  circulating 
media  due  to  the  vast  multitude  of  military  and  civilian  peoples 
drawn  to  France  by  the  war,  yet  there  has  been  as  a  result  of  the 
undoubted  increase  in  note  circulation  an  infl'.tion  of  the  cur- 
rency with  all  the  attendant  depreciation  of  the  franc  and  rise  in 
prices.  The  rise  in  prices  is  shown  by  the  result  of  an  inquiry 
made  by  the  Statistique  Generate  de  la  Frame,^  based  on  the 


1  Cohtmcrcial  and  Financial  Chronicle,  January  4.  1919,  p.  8. 


FRANCE 


109 


purchase  price  of  some  thirteen  articles  of  general  consumption 
consisting  of  foodstuffs  and  lighting  and  heating  materials  in 
the  public  market  of  all  French  towns  of  over  10,000  inhabitants^ 
The  index  number  thus  obtained  stood  at  1004  for  the  third 
quarter  of  1914;  at  1235  for  the  same  period  in  1915;  at  1420 
for  1916,  and  at  1845  for  1917.     The  first  quarter  of  1918 
showed  a  further  rise  to  2120.    Of  course,  part  of  this  was  due 
to  decreased  production  and  scarcity,  but  there  is  no  doubt  that 
the  inflation  of  the  currency  played  an  important  part  in  the  nse 
of  prices  in  France.    The  only  thing  which  stood  between  France 
and  inconvertible  paper  money  was  the  Bank  of  France.     The 
gold  reserves,  in  spite  of  the  fact  that  there  had  been  no  exports 
during  1918,  and  a  collection  of  $25,400,000  had  taken  place, 
were  dangerously  low,  and  alarm  was  expressed  by  French 
writers  that  in  view  of  the  enormous  volume  of  bank  notes  out- 
standing, specie  payments  could  not  be  resumed.    The  following 
table  shows  the  changes  which  have  taken  place  in  the  note  issues, 
advances  to  the  state,  and  gold  holdings,  at  more  or  less  signifi- 
cant dates  during  the  war  period : 


m 


1l: 

!   'I 


110 


DIRECT  A\D  INDIRECT  COSTS  OK  THE  WAR 


BANK  OF  FRANCE 


It 


Note 

Advances 

G 

old 

Date 

Circulation 

to  State 

In  Vault 

Abroad 

1914  July  30 

1915  January   28 

$1,336,640,000 

$828,260,000 

2,094,700.000 

$780,000,000 

846,760,000 

February  28 

2,192.400,000 

.$880,000,000 

847,780,000 

March  25 

2.235.300,000 

940,000.000 

849,740.000 

April  29 

2.316.880.000 

1,040.000.000 

833,800.000 

May  27 

2,365,580,000 

1,100.000,000 

782.680.000 

June  24 

2.420.940.000 

1.20O.000.000 

785.440.000 

July  29 

2,518,500,000 

1,260,000,000 

825.860.000 

August  26 

2,590,060.000 

1,260.000,000 

853,260.000 

September  30  2.691.660,000 

1,340.000,000 

910.020.000 

October  28 

2,773.520,000 

1,380.000,000 

946.000.000 

November  25 

2.855.680.000 

1.480.000.000 

967.O4O.00n 

December  30 

2.661.980.000 

1,000.000,000 

1.003,060,000 

1916  January  27 

2.771,600.000 

1.080.000.000 

1.002.320,000 

February  24 

2,859.060.000 

1,140.000.000 

1.007,180,000 

March  30 

2,990.420.000 

1,340.000.000 

l,00U6O,0O0 

April  27 

3,055,600.000 

1,440.000.000 

960.720.000 

May  25 

3,087,000,000 

1,500,000.000 

946,300,000 

June  29 

3.161,140,000 

1,580.000.000 

898,440.000 

July  27 

'  '"8,180,000 

1,660,000,000 

903.100.000 

August  31 

,  -  1.920.000 

1,680.000,000 

847,800.000 

September  28  3,-42,820,000 

1,700.000,000 

831,640.000 

October  26 

J.317.840,000 

1,720,000,000 

849.480.000 

November  30  3,223.900,000 

1.300,000,000 

752,920,000 

$277,000,000 

December  28 

3,335,760.000 

1,480.000.000 

676,560.000 

1917  January  25 

3,465.640.000 

1,620.000,000 

665.380.000 

359,000,000 

February  22 

3.577,700,000 

1,760.000,000 

639.380.000 

March  29 

3,691.960.000 

1,900.000,000 

650.480.000 

April  26 

3.801.980.000 

1.980.000.000 

658.900.000 

May  31 

3,895,880.000 

2,100.000,000 

647.980.000 

June  28 

3,964,620.000 

2,120,000.000 

650.640,000 

406,900,000 

July  26 

4,040,340.000 

2,140.000,000 

652.720.000 

August  30 

4,113,740,000 

2,240,000,000 

654.940.000 

September  27  4,198.960,000 

2,330,000,000 

656.460.000 

407,420,000 

October  25 

4,341,060,000 

2,430.000.000 

657,800.000 

December  27 

4,467,200,000 

2,500,000,000 

662.880.000 

1918  April  4 

5,169,400,000 

2,960,000,000 

667,590,000 

407,420,000 

July  25 

5.829,600,000 

3,780,000,000 

679,080,000 

October  31 

6,156,400,000 

3.760.000,000 

681,300,000 

December  26 

6,049,800.000 

3,430,000,000 

688.090.000 

407,420,000 

Borrowings,  1918 

To  meet  the  growing  expenditures  the  government  relied  for 
the  most  part,  aside  from  the  advances  of  the  Bank  of  France, 
upon  loans.  The  bons  de  la  defense  nationalc  were  extremely 
popular  and  represented  a  steady  and  dependable  reliance  of  the 


FRANCE 


111 


government  at  all  times.  Their  sale  was  made  a  special  feature 
in  the  celebration  of  Bastille  Day  on  July  14,  when  the  country 
subscribed  to  $22,000,000.  Sales  of  bons  increased  steadily 
from  month  to  month.  For  the  first  fortnight  of  October  sub- 
scriptions amounted  to  $294,400,000— the  largest  in  any  such 
period  since  the  issue  of  that  form  of  security.  This  was  the 
highwater  mark,  and  was  $100,000,000  greater  than  the  next 
highest  fortnightly  sales  during  the  year  1918.  For  the  month 
of  November  the  subscriptions  amounted  to  $439,600,000.  Dur- 
ing the  first  two  weeks  of  December  they  exceeded  $200,000,000. 
The  total  amount  issued  during  the  year  was  $26,614,000,000,  as 
against  $8,020,000,000  during  1917,  of  which  there  remained 
outstanding  on  December  31,  1918,  some  $4,483,750,000.  By 
the  end  of  the  year  the  government  was  able  to  reduce  the  in- 
terest on  these  short  term  notes;  originally  the  rate  had  been 
fixed  at  5  per  cent,  but  a  year  later  it  was  reduced  to  4  per  cent 
on  the  one  and  three  months'  bons.  The  new  rates  now  estab- 
lished were:  3.5  per  cent  for  one  month;  4  per  cent  for  three 
month;  4.5  per  cent  for  six  month;  and  5  per  cent  for  one  year 

bons.^ 

It  was  necessary,  finally,  to  ta)-  up  this  swelling  mass  of  short 
term  paper,  and  accordingly  the  fourth  French  loan  was  an- 
nounced for  subscription  from  October  20.  It  was  a  4  per  cent 
perpeiual  rente.  The  coupons  were  free  from  taxation  and  the 
bonds  were  not  convertible  for  at  least  twenty-five  years.  No 
limit  was  placed  upon  the  amount  of  the  loan  which  would  be 
accepted  by  the  government.  It  was  issued  at  70.80,  at  which 
price  the  yield  would  be  5.65,  which  was  slightly  less  than  the 
rate  on  the  previous  issues.  Provision  was  made  imder  condi- 
tions ver>-  favorable  to  the  holder  for  the  acceptance  in  part  pay- 
ment of  bons,  obligations,  3J4  per  cent  redeemable  rente  scrip, 
and  Treasury  bills.  One  of  tfie  novel  features  in  connection  with 
the  new  loan  was  that  the  holders  of  Russian  Government  bonds 
were  allowed  to  utilize  in  part  payment  of  the  French  loan 

1  Quoted  by  Economist  (London),  November  9,  1918,  p.  654. 


1  12  DIRF.f  T  AND  INniRECT  COSTS  OF  THE  WAR 

couix,ns  luaturing  during  the  year  1918  up  to  50  per  cent  of  their 

subscription.  .  , 

In  spite  of  the  supposed  financial  ^^^austjon  o,  i^ance^  the 
subscriptions  to  the  fourth  loan  reached  a  total  of  $6,000,000  000 
nominal  capital,  representing  a  return  to  the  Treasury  of  $4,250.- 
000  000.     Russian  coupons  were  turned  in  to  the  amount  ot 
SSO'OOOOOO.    There  were  over  7.000,000  subscribers  to  the  loan. 
Although  the  main  dependence  of  the  French  Government  m 
raising  the  enormous  sums  called  for  under  her  loan  po^cy  had 
been  the  French  people  themselves,  about  one  quarter  of  the  bor- 
rowings from  the  beginning  of  the  war  had  |^n  f -^^''^ 
foreign   countries.      England    had    contributed    $2.1/0.000.000 
down  to  April.   1919;  United  States    advances  were  $2./52- 
477,000  to  April,  1919;  Japan's  $39,340,000;  Switzerland.  Hol- 
land, Spain,  etc..  $110,000,000. 

During  the  year  1918.  advances  from  the  Bank  of  France  in- 
creased from  $2,500,000,000  to  $3,430,000,000  on  December  26. 
or  $930,000,000.  The  total  borrowings  of  the  French  Govern- 
ment from  1914  to  1918  may  be  summarized  as  follows: 

FRANCE.  WAR  BORROWINGS,  1914  TO  1918 

Amount 

wSr..  1915  NO...  ^^^1.^^  A-  ^.|lg 

$14,304,400,000  ^^^'^^^^'^^^^l^^Z 

Advances  from  Bank  of  France y       '  i7;ooo',000 

Advances  from  Bank  of  .Al,8"'a- • " •  •  •  —.X '.'.'.'.'....     2,170,000,000 

Advances  from  Great  Britam  to  Apnl    1919 2436,427,000 

Advances  from  United  States  Goveniment      ^^^. .  .^.  ^.  ■  •  'ggeoOOoOO 

Private  loans,  collateral  and  mdustrial,  m  United  States.  i50,000,000 

Loans  in  neutral  countries. •  •  •  •■;;.•••,:  "Y'l;"  ■;;;■.....     4,800,000,000 

Floating  debt,  bon ,;  obligations,  and  obligatton-bons ,_ — ; 

$24,701,427,000 

Taxation,  1918 

France  had  already  made  energetic  efforts  in  1917  to  increase 

her  tax  revenues  in  spite  of  -Averse  conditions   and  du^^^^^^^ 

year  1918  she  continued  the  same  policy.    For  1918  the  tot^esti 

Lted  receipts  from  revenues  were  placed  at  $1,642,570,000.  or 


FRANCE  113 

about  $700,000,000  more  than  the  prewar  normal  of  1913.  The 
greatest  increase  in  direct  taxation  was  of  course  the  income  and 
war  profits  taxes.  The  total  direct  taxes  from  income  and  capital 
had  risen  from  $337,449,200  in  1912,  to  $628,400,000  in  1918, 
an  increase  of  $290,950,000.  Indirect  taxes,  however,  had  in- 
creased in  much  g^reater  proportion,  alcrfiol  and  tobacco  taxes 
rising  irom  $161,000,000  to  $405,600,000,  and  customs  duties 
increasing  from  $66,600,000  to  $326,000,000. 

Further  increases  in  existing  taxes,  and  the  introduction  of 
new  taxes,  were  proposed  e.irly  in  the  year.  These  aflfected  in- 
come, mainmorte,  verification  of  weights,  contracts,  legacies,  and 
articles  of  association,  stamped  paper,  insurance  policies,  wine 
and  beer,  molasses  and  glucose,  and  the  so-called  luxurj'  tax. 
The  character  of  the  taxes  suggested  indicates  the  French  pref- 
erence for  indirect  taxation,  and  also  the  difficulties  which  they 
were  now  experiencing  in  finding  new  sources  of  revenue.  The 
heavy  taxation  on  articles  of  consumption,  added  to  the  enormous 
rise  in  prices  through  the  inflation  of  the  currency,  had  made  the 
cost  of  living  a  serious  problem  for  all  Frenchmen,  and  a  well 
nigh  insuperable  one  for  the  poorer  classes  with  large  families. 
In  comparison  with  the  year  1914  the  cost  of  living  had  risen 
1 12  per  cent  by  the  first  quarter  of  1918.  There  were  not  lacking 
critics  who  urged  that  this  would  have  a  serious  efifect  upon  the 
already  stationar)'  birthrate  and  would  place  France  in  a  still 
more  difficult  position  after  the  war  in  relation  to  other  nations. 
The  Paris  correspondent  of  the  London  Economist,^  comment- 
ing upon  this  fact,  gave  the  following  interesting  comparative 
table  of  receipts  for  a  twelvemonth  to  show  the  variation  in  rates 
of  levies  under  the  French  and  English  method  of  taxation : 

Type                                                    France  England 

Income  tax   $54,000,000  $1,197,400,000 

Tax  on  war  profits 116,000,000  1.101,000,000 

Taxes  on  articles  of  consumption 905,400,000  550,500,000 

The  new  impositions  were  expected  to  bring  in  an  additional 
S"2,400,000,  in  addition  to  the  e  tpected  $60,000,000  of  new  rev- 

1  November  9,  1918,  p.  654. 


114 


DIRK.t  r  AND  INDIRECT  COSTS  OF  THE  WAR 


'  ft 

IS- 

r  1 


enues  from  the  taxes  on  transportation,  docking  dues,  and  sup- 
pression of  fiscal  frauds  introduced  to  make  up  the  deficit  m 
the  April  revision  of  the  civil  budget. 

The  income  tax  was  revised  by  the  July  law,  exemptions  and 
deductions  remaining  as  before,  and  incomes  were  now  divided 
into  four  categories:  (1)  not  exceeding  $1-000  net.  which  bore 
a  tax  rate  of  V/.  per  cent;  (2)  between  $1,000  and  $30,000 
upon  which  the  rate  progressed  from  V/.  per  cent  on  the  mini- 
mum to  16  per  cent  on  the  maximum;  (3)  between  $30,000  and 
$110  000,  on  which  the  rate  progressed  from  16  per  cent  on  the 
minimum  to  20  i^er  cent  on  the  maximum;  and  (4)  exceeding 
$110,000  on  which  the  rate  was  20  per  cent. 

The  most  interesting  tax  of  this  year  was  the  tax  on  luxuries. 
When  the  bill  dealing  with  this  tax  was  introduced  into  the 
Chamber  bx  the  Minister  of  Finance,  it  proposed  a  threefold 
classification.  The  object  of  the  law.  according  to  the  Mmister, 
was  "to  attack  manifestation-  of  wealth,  and  not  instruments  of 
labor.  It  taxes  enjoyment,  but  does  not  wish  to  paralyze 
effort.'"  The  classification  proposed  grouped  commodities,  ac- 
cording to  their  luxuriou:  character,  as  follows : 

(1)  Obvious  luxuries:  in  this  group  were  enumerated  photo- 
graphs, jewelry,  antiques,  sporting  games,  mechanical  pianos, 
motor  cars,  billiard  tables,  perfumes,  sculptures,  yachts,  silk  un- 
derwear, liqueurs,  watches,  etc. 

(2)  General  articles  such  as  clothing,  which  become  a  luxury 
when  the  price  exceeds  a  certain  sum.  In  this  group  taxes  were 
imposed  if  the  price  exceeds:  $2  on  imitation  jewelry,  children's 
undergarments,  scissors,  yard  lace,  fans,  and  imitation  bronze; 
$4  on  gaiters,  bookbinding,  traveling  clocks;  $8  on  pleasure 
dogs-  SIO  on  Ixwts,  tablecloths,  tea  and  coffee  service;  $16  on 
children's  suits:  $20  on  men's  suits;  $50  on  women's  costumes; 
$100  on  horses ;  $300  on  safes  and  motorcycles. 

The  bill  as  finally  passed  in  March  was  a  double-barreled  affair 
which  taxed  ( 1 )  every  payment  of  a  sum  exceeding  $30  repre- 
senting the  retail  sale  or  consumption  of  a  luxury  commodity 
at  the  rate  of  20  centimes  per  100  francs  or  fraction;  (2)  there 


FRANCE 


115 


was  also  a  tax  of  10  per  cent  upon  the  price  paid  for  any  object 
or  article  of  merchandise  which  was  designated  by  law  as  an 
article  of  luxury,  and  for  expenditures  made  in  certain  establish- 
ments such  as  hotels  and  restaurants  which  were  classed  as 
"establishments  de  luxe."  Both  of  these  taxes  were  to  go  into 
effect  on  April  1,  1918. 

It  was  not  long  before  wholesale  protests  began  to  be  for- 
warded to  the  government  against  the  10  per  cent  tax  on  articles 
of  luxurj-.  It  was  objected  to  upon  the  ground  that  prices  were 
already  high  enough;  that  it  was  unfair  in  distribution,  since  it 
applied  only  to  prices  in  excess  of  certain  minimi.  Difficulties, 
too,  in  the  way  of  practical  administration  developed,  and  trade 
in  the  articles  falling  under  the  scope  of  the  tax  fell  oflf  enor- 
mously. It  was  urged  that  in  lieu  of  this  a  tax  of  2  per  cent  on 
the  "turnover"  be  substituted.  By  Novendjer  the  so-called  luxury- 
tax  had  become  so  unpopular  that  its  radical  modification,  if  not 
its  entire  abolition,  was  regarded  as  imperative.  After  a  trial  of 
over  six  months,  it  produced  only  about  one-third  of  the  ex- 
pected revenue,  and  proved  equally  unpopular  both  with  pur- 
chasers and  merchants.  In  many  cases  the  stores  themselves 
paid  the  tax  in  order  not  to  lose  trade.  It  was  also  urged  as  an 
objection  that  many  of  the  articles  classified  as  luxuries  had  in 
reality  come  to  be  regarded  as  necessities,  and  finally,  that  the 
bookkeeping  involved  constituted  a  serious  cost  to  the  merchant. 
As  a  result  of  these  protests,  a  bill  was  introduced  into  the  Cham- 
ber proposing  to  replace  the  luxury  tax  by  a  2  per  cent  tax  on 
the  total  turnover.  In  order  to  ascertain  this,  every  merchant 
was  to  be  required  to  keep  books  showing  his  exact  daily  receipts. 
The  general  theory  of  the  luxury  tax  was  very  unpopular  in 
France.  It  was  stated  that  the  government  was  uncertain 
whether  it  was  repressing  undersirable  expenditure,  or  seeking 
to  increase  its  revenues.  The  two  purposes  being  self-contra- 
dictory, both  could  not  be  secured  by  the  same  enactment;  in 
France  the  former  result  seems  to  have  been  attained  at  the  ex- 
pense of  the  latter,  but  it  was  not  obtained  without  considerable 
cost  in  irritation  and  dissatisfaction  on  the  part  of  the  people — 


116 


DIRECT  AND  INDIRECT  COSTS  OF  THE  WAR 


an  intangible,  though  sometimes  heavy,  price  for  a  government  to 
pav.  In  the  next  session  of  the  Assembly  the  luxury  tax  was 
thrown  out  of  the  Chamber,  but  was  finally  restored  after  the 
Senate  had  voted  to  retain  it.  Modifications  were  made  in  the 
tax  to  meet  some  of  the  more  serious  objections.' 

French  financial  critics  had  lately  been  directing  increasing 
attention  to  the  dangers  of  the  loan  policy  in  financing  the  war 
instead  of  endeavoring  to  meet  at  least  the  civil  expenditures, 
incMing  interest  on  the  loan,  out  of  current  revenues.     The 
French  method  of  living  from  hand  to  mouth  and  leaving  the  set- 
tlement of  the  war  costs  until  after  the  war  was  over,  is  a  policy 
which  can  safely  be  adopted  only  in  the  case  of  a  short,  victorious 
war.    In  view  of  the  long  continuation  of  the  struggle  the  policy 
had  well  nigh  broken  down,  and  would  probably  have  collapsed 
entirely  had  it  not  been  for  the  opportune  assistance  secured 
through  the  entr>-  of  the  United  States  into  the  war  and  the 
credits  granted  by  that  government.    The  day  of  reckoning,  how- 
ever, was  fast  approaching,  and  could  not  much  longer  have  been 
p«>stix)ned.    There  is  some  excuse  to  be  made  for  France  in  view 
of  the  fact  that  some  of  her  richest  departments  were  invaded. 
In  measuring  the  tax  effort  of  France  it  may  fairly  be  said  that 
this  invasion  resulted  in  a  loss  of  revenues  of  $152,000,000  for 
the  full  year  of  1915.  and  as  this  total  area  was  either  occupied 
or  rendered  nonproductive  front  a  tax  viewpoint  for  the  full 
four  and  a  half  years  of  the  war.  the  war  loss  of  revenues  alone 
amounted  to  $684,000,000.    Therefore  the  heavy  burden  of  tax- 
ation  due  to  increased  levies,  which  yielded  $1,082,900,000  in 
1917  and  was  estimated  to  yield  $1,642,570,000  in  1918,  repre- 
sents not  a  general  increase  on  the  full  peace  base  of  taxation, 
but  an  absolute  increase  on  a  much  more  restricted  base,  namely, 
the  uninvaded  portion.     This  subtraction  of  taxable  area  and 
population  for  the  war  period,  and  the  imposition  of  the  whole 
burden   with  its  increasing  demand  on  the  uninvaded  part  of 
France,  so  modifies  the  mere  volume  of  Treasury  receipts  that 
it  does  not  permit  of  comparison  with  the  fiscal  efforts  of  non- 

1  Paris  flfspatch  in  IVashington  Post,  .\pril  2,  1919. 


FRANCE 


ii; 


invaded  countries  like  Great  Britain.  On  the  other  hand,  if  the 
rates  of  the  income  tax,  for  instance,  are  compared — the  last 
enactments  in  these  countries  being  42yt  per  cent  in  England  on 
the  higher  incomes,  and  only  20  per  cent  in  France,  and  the 
final  war  profits  in  England  being  80  per  cent  of  the  excess  over 
$1,000,  and  in  France  60  per  cent  of  excess  over  $100,000 — the 
inadequacy  of  the  effort  is  more  apparent.  The  unwisdom  of 
such  a  policy  of  not  raising  sufficient  amounts  by  taxation  to 
pay  the  expenses  of  the  civil  budget  and  interest  on  the  money 
borrowed  has  been  shown  by  the  experience  of  the  United  States 
in  the  War  of  1812  and  the  Civil  War.  It  was  even  more  vividly 
illustrated  by  the  experience  through  whidi  Germany  was  now 
passing  as  a  result  of  her  almost  complete  dependence  upon  the 
loan  policy.  There  was  this  difference,  however,  between  France 
and  Germany — the  former  country  was  pushed  into  the  abyss  of 
inflated  credit  and  overexpansion  of  note  circulation,  while  the 
latter  deliberately  chose  and  planned  her  policy  as  the  correct 
method  of  financing  a  war.  If  further  proof  were  needed  of  the 
unwisdom  of  this  method,  it  is  certainly  furnished  by  the  finan- 
cial experience  of  these  two  countries  during  the  war. 

The  finances  of  the  war  as  finally  reported  to  the  Giamber 
of  Deputies  ^  may  be  summed  up  as  follows :  The  war  ex- 
penses were  estimated  to  reach  in  round  numbers  a  total  of 
$36,400,000,000.  To  meet  this  there  were  raised  during  the 
war  total  receipts  of  $31,600,000,000,  the  difference  of  $4,800,- 
000,000  remaining  as  a  floating  debt.  The  resources  comprised 
$3,600,000,000  from  taxation;  $10,800,000,000  from  the  four 
war  loans;  $4,000,000,000  advances  by  Banks  of  France  and 
Algeria,  and  the  remainder  from  short  term  Treasury  bonds  and 
advances  made  by  Allies. 

In  addition  to  the  $4,800,000,000  deficit,  certain  extraordinarj' 
expenditures  should  be  added  to  give  a  correct  idea  of  the  cost 
of  the  war.  Such  expenses  would  include  compensation  to 
civilians  for  war  damages  which  is  placed  at  $2,000,000,000;  the 
cost  of  exchanging  the  German  mark  currency  in  Alsace-Lor- 

»  Paris  despatch  in  New  York  Times,  February  18,  1919. 


S'li  ■ 


118  DIRECT  AND  INDIKECT  COSTS  OF  TJIE  WAR 

raine,  $500,000,000;  payment  of  bonds  issued  in  the  liberated 
regions,  $300,000,000;  demoblizatian  bonuses  estimated  at  be- 
tween $400,000,000  and  $1,200,000,000,  and  other  exceptional 
expenses  suflfkient  to  bring  the  total  to  about  $5,200,000,000. 
If  this  be  added  to  the  $36,400,000,000  already  given  as  the 
money  outlay  on  account  of  the  war,  the  total  cost  to  France 
would  be  brought  up  to  $41,600,000,000. 

The  direct  cost  of  the  war  to  France  may  therefore  be  arrived 
at  as  follows: 

Expenditures,  1914— Ordinary $1,038,200,000 

Extraordinary   1.779,700.000 

$2317,900.000 

1915 4.560,800.000 

1916 6.589.029,000 

1917 8.374.185.000 

1918 8.537.800.000 

$30,879,714,000 
Less  5  years  normal  ( 1913,  $1.013.386,240) 5,066,931.200 

Net  cost  of  war  (five  full  years) $25,812,782,800 

This  was  met  by : 

Source  Amount 

Four  war  loans,  actual $11,012,200,000 

Advances  from  Banks  of  France  and  Algeria  3,430.000.000 

Advances  from  Great  Britain 2.170.000.000 

Advances  from  United  States 2.436,427.000 

C"''  'erai  iuid  iiduarial  in  U.  S.  A 686,000,000 

Lo»ij  in  neutral  countries 150.000,000 

Floating  debt  i'f^'^'f^ 

Revenues,  5  years i^£,i/£,iJU 

$29,916,999,130 
Less  5  years  normal  (1913,  $927,911,505)  ■ . .  ■      4,639,557.525 

Extraordinary  receipts   (five  full  years) $25,277,441,605 

There  is  thus  shown  a  deficit  of  $535,341,195  between  e;.pendi- 
tures  and  receipts,  which  must  be  added  to  the  item  of  float- 
ing debt  reported  in  February  to  the  Chamber  of  Deputies. 


RUSSIA 

The  economic  and  financial  situation  in  Russia  was  a  sound 
one  in  1914.  For  several  years  the  budget  had  shown  a  surplus, 
and  a  period  of  economivj  expansion  which  had  set  in  after  the 
eiid  of  the  war  with  Japan  gave  a  firm  foundation  for  the  state 
finances.  The  Treasury  had  been  able  not  only  to  reduce  the 
government  debt  from  ^, J  15,000,000  lO  $4,412,000,000  in  the 
three  years  from  1910  to  1913,*  but  it  had  also  accumulated  an 
emergency  reserve  fund  of  about  $250,000,000.  At  the  out- 
break of  the  war  Russia  held  the  largest  supply  of  gold  in  her 
history  and  the  largest  of  any  European  state,  amounting  to 
$850,000,000.  The  econcmiic  condition  and  the  finances  of  Rus- 
sia were,  however,  seriously  affected  by  the  Austro-S«?rt>ian  con- 
flict which  it  was  clear  could  not  long  remain  localized.  Toward 
the  end  of  July  there  was  a  considerable  slump  in  all  dividend 
stocks,  and  finally,  in  order  to  avert  a  panic,  the  Petrograd 
bourse  was  closed  on  July  29.  At  the  same  time,  a  moratorium 
for  two  months  was  declared  as  of  July  25,  which  was  later 
extended. 

When  the  war  began  the  government  turned  at  once  to  the 
Imperial  Bank  of  Russia  for  assistance,  and  during  the  first  few 
weeks  received  advances  from  that  ''.istitution  averaging  about 
$50,000,000  a  week.  As  in  the  case  of  the  other  continental 
banks,  the  government  relieved  the  Bank  of  the  obligation  of  re- 
deeming its  notes  in  specie,  and  at  the  same  time  removed  all 
checks  upon  note  issues  up  to  the  l^al  limit  of  $1,100,000,000. 
In  this  way  the  gold  reserve  was  safeguarded  and  the  credit  of 
the  Bank  was  made  available  for  the  use  of  the  state. 

The  financial  policy  adopted  by  Russia  was  similar  to  that  fol- 
lowed by  practically  all  of  the  belligerents  except  England,  and 
was  clearly  stated  by  the  Minister  of  Finance  in  his  budget  speech 

1  Russian  Year  Bock,  1917. 


t  II 


.11. 

in 


120  DIUECT  AND  INDIRECT  COSTS  OF  THE   WAR 

of  March.  1916.  The  civil  expenditures  were  to  be  defrayed  as 
far  as  ix>ssible  out  of  taxation;  the  cost  of  the  war  and  any 
deficits  in  the  civil  budget  were  to  be  met  by  loans  and  issues 
of  paper  mone>.  The  receipts  and  expenditures  of  the  civil 
budget  should  therefore  be  studied  in  order  to  see  the  extent  of 
the  deficits.'  To  a  certain  extent  they  mu^t  be  counted  as  a 
part  of  the  cost  of  the  war.  As  they  were  defrayet*  out  of  loai.s 
and  issues  of  paper  money,  they  at  once  complicatec  war  finance. 
E\ery  effort  was  made  to  avoid  a  deficit  in  the  civ  '  Ijrdget  and 
expenditures  for  .so(.ial  purposes  were  cut  down  o»  eliminated 
where\er  possible.  The  small  deficit  which  showed  itself  the 
first  year  was  met  out  of  ttie  free  cash  in  the  Treasur>'.  The  fol- 
lowing year  the  ordinary  militarj-  and  naval  expenditures  were 
transferred  to  the  war  budget.  Large  as  were  these  deficits,  they 
were  really  greater  than  appears  in  the  budget  statements  of  the 
government.  Tlie  following  table  shows  the  civil  expenditures 
and  receipts  for  the  four  years  1914  to  1917,  inclusive: 

CIVIL  EXPENDITURES  i»\D  RECEIPTS,  RUSSIA,  1914  TO  1917 
Ordinary — In  millions  of  dollars 

Year                   Expenditures           Receipts  Deficits 

1914 1,464                    1,449  15 

1915 1,534                    1,397  137 

1916 1,587                    1,457  130 

1917 3,06'                     1370  1,191 

7,646  6,173  1,473 

The  war  rot  only  increased  the  expenditures,  it  also  greatly 
reduced  the  tf  enues.  The  foreign  trade,  one-third  of  which 
had  been  with  Germany,  was  profoundly  affected.  The  closing 
of  the  Dardanelles  and  the  suspension  of  the  navigation  of  the 
Baltic  put  an  end  to  the  trade  through  these  two  routes.  The 
result  was  a  lo.ss  of  alK>ut  80  per  cent  of  the  prewar  foreign 
trade  and  a  corresixjnding  reduction  of  customs  revenues 
amounting  to  about  $230,000,000  annually.  A  still  greater  sac- 
rifice of  revenue,  amounting  to  more  than  a  fourth  of  the  total, 

>  There  are  three  budgets  in  Russia— the  civil  or  ordinary,  the  extraordinary 
civil,  and  extraordinary  military.    Here  only  the  first  is  considered. 


RUSSIA  121 

was  made  by  the  abolition,  immediatel)'  on  tiie  declaration  of 
war,  of  the  state  traffic  in  vodka.  The  revenues  just  before  and 
during  the  war  from  this  source  are  shown  in  the  following 
table : 

RUSSIAN  REVENUE  FROM  SPIRIT  MONOPOLY 

Year  Amount 

1913 $449,650,000 

1914 251,950,000 

1915 15,360,000 

1916 25,680,000 

1917 24,800,000 

$767,440,000 

To  offset  this  loss  new  taxes  were  proposed  which  were  cheer- 
fully accepted  by  the  commercial  class.  These  comprised  a  trans- 
port tax  on  all  goods  transported  within  Russia  by  rail  or  water ; 
a  tax  on  passenger  tickets ;  one  on  cotton,  and  an  increase  in  the 
postal  and  telegraph  rates.  In  this  way  it  was  expected  to  make 
up  the  deficit  caused  by  the  abolition  of  the  liquor  traffic  and  it 
was  hoped  that  the  increased  productive  capacity  of  the  Russian 
nation  would  be  so  great  as  a  result  of  the  abolition  that  the  new- 
taxes  would  not  impose  in  reality  any  additional  burden  and 
would  be  easily  raised. 

Three  financial  problems  presented  themselves  for  solution  at 
the  outset:  first,  the  replacement  of  the  revenue  previously  de- 
rived from  the  sale  of  vodka ;  second,  the  actual  financing  of  the 
war;  and  third,  the  raising  of  additional  revenue  to  meet  the 
interest  on  the  new  war  loans  and  other  additions  to  the  civil 
budget  resulting  from  the  war.  The  first  was  met  in  the  man- 
ner above  outlined.  In  the  solution  of  the  second  the  govern- 
ment turned  for  assistance  to  the  Bank  and  to  the  loan  market. 
In  a  memorandum  annexed  to  the  Russian  budgr!  t'  Minister 
of  Finance  estimated  the  cost  of  the  war  up  to  0« .  ,r  31,  1914, 
at  $892,500,000.  This  expenditure,  he  announced,  had  been 
covered  in  the  following  ways: 


1 1 


p 


122 


DIRECT   AND  IXDIRF.CT  COSTS  OF  THE   WAR 


CHARACTER  OF  BOP  ROWINGS 
1914  Amount 

Internal : 

October        3      Long  dated  5  per  cent  49  year  loan $257,000,000 

August       22      Short  dated  4  per  cent  Treasury  note- 150,000,000 

Julv  23  ] 

October        6  [   Treasury  bonds   650,000,000 

December  26  J 

Foreign : 

October        6      Short  dated  Treasury  bonds   (London) 60,000,000 

December  26      Short  dated  Treasury  bonds,  5  per  cent 200,000,000 

$1,317,000,000 

The  i.xtemal  loans  were  those  placed  in  London  the  proceeds 
of  which  were  to  be  vised  in  the  purchase  of  supplies  in  England. 
The  Russian  Government  also  shipped  $40,000,000  in  gold  to 
London  in  November  to  establish  a  credit  to  finance  Anglo- 
Russian  trade.  The  total  amount  of  foreign  loans  placed  by 
Russia  between  October  6  and  December  31,  1914,  was 
$260,000,000. 

The  short  term  internal  loans  of  this  period  were  (a)  Treas- 
ury notes  issued  under  the  ukase  of  August  22  at  4  per  cent, 
amounting  to  $150,000,000  and  (b)  Treasury  bonds  under  the 
ukase  of  July  23,  October  6  and  December  26,  being  5  per  cent 
bonds  in  amount  of  $650,000,000.  The  long  term  borrowing 
was  the  first  Russian  war  loan  issued  in  October,  being  5  per 
cent  bonds  redeemable  in  1925  and  payable  in  1965.  They  were 
issued  at  94,  and  yielded  about  $257,000,000. 


Expenditures,  1915 

In  his  budget  speech  to  the  Imperial  Duma  at  the  beginning 
of  September,  1915,  M.  Bark  announced  that  the  war  expendi- 
ture contracted  to  July  1,  1915,  had  amounted  to  $2,728,000,000 
or  at  the  rate  of  about  $8,500,000  a  day.  The  deficit  in  the  civil 
budget  of  the  previous  year  he  announced  as  $336,800,000  of 
which  $216,400,000  was  due  to  the  suppression  of  the  sale  of 
vodka.  The  increased  taxation  had  barely  met  the  civil  expendi- 
ture, and  consequently  credit  operations  to  the  extent  of  about 
$30,400,000  had  been  resorted  to.     For  the  coming  fiscal  year 


RUSSIA 


123 


he  stated  that  the  revenue  was  expected  to  amount  to  $1,397,- 
000,000,  which  was  $1 18,000,000  less  than  had  been  anticipated 
in  the  estimates  for  the  year.  The  deficit  of  1914  had  been 
covered  by  the  free  cash  balance  in  the  Treasury.  As  this  had 
amounted  on  January  1,  1914,  to  $257,100,000  there  was  still 
some  available  to  apply  to  the  1915  deficit,  and  M.  Bark  thought 
that  $40,500,000  of  this  would  be  available.  In  addition  it 
was  proposed  to  transfer  $248,000,000  of  the  ordinary  naval 
and  military  expenditure  for  1915  to  the  extraordinary  war 
fund,  so  that  the  civil  budget  would  be  relieved  of  these  charges. 
In  this  manner  it  was  hoped  to  balance  the  budget  of  1915.  The 
total  amount  of  the  budget  was  $1,625,457,600.  This  was 
about  $24,250,000  more  than  the  previous  year.  Although  the 
Mmister  suggested  the  introduction  of  an  income  tax  which 
should  become  the  cornerstone  of  Russian  finance  in  the  future, 
the  chief  dependence  continued  to  be  placed  upon  borrowing. 

Banks,  1915 

\  e  government  continued  to  draw  largely  upon  the  Imperial 
Bank.  Treasury  bills  were  discounted  freely  at  this  institution 
and  the  proceeds  given  to  the  government  in  the  form  of  bank 
note^  Paper  money  played  an  important  role  in  Russian  war 
finance  from  the  very  beginning,  and  increasingly  so  a^  time 
went  on.  The  legal  limit  upon  the  note  issues  of  the  bank  just 
before  the  war  (July  27-August  9)  was  raised  by  law  from 
$150,000,000  to  $600,000,000.  On  March  17-30,  1915,  it  was 
further  raised  to  $1,100,000,000;'  on  August  22,  1915,  to 
$1,750,000,000;  and  finally,  on  September  4,  1915,  to 
$4,250,000,000. 

At  the  same  time  the  gold  reserve  of  the  bank  fell  off,  so 
that  the  ratio  between  gold  reserve  and  notes  declined  as  a  re- 
sult of  both  causes.  By  October,  1915,  the  ruble  bad  depreciated 
about  36  per  cent.  As  in  almost  all  historical  instances  of  de- 
predation due  to  overissue  any  cause  is  attributed  except  the 


V  B'J 


,  Russian  Year  Bock.  1916,  p.  639. 


124 


UIKECT   AND  I.VDIKECT   COSTS  OF  THE   WAR 


correct  one.  so  now  this  depreci  ''on  of  the  Russian  paper  ruble 
was  sa'f'  to  be  due  to  the  stoppage  of  foreign  trade.  There  was, 
howc  a  certain  justification  for  increased  issues  in  the  new 
denia,„i  wliich  had  arisen  for  additional  currency  as  a  result 
of  several  factors:  (1)  increasing  employment  of  bank  notes 
by  millions  '^f  men  in  the  army  who,  before  the  war,  had  no 
need  of  money:  (2)  the  development  of  cash  payments  instead 
of  sales  on  credit:  (3)  a  higher  standard  of  life  after  the  pro- 
hibition of  vodka. 

That  the  issues  were  in  response  to  an  increased  demand  in 
part  at  least  is  seen  from  the  fact  that  they  were  chiefly  in  small 
notes  fronn  one  tc  ten  rubles.  On  December  31,  1915,  the 
three,  five  and  ten  ruble  notes  formed  47  per  cent  of  the  cir- 
culation. Gold  had,  of  course,  from  the  very  beginning  dis- 
appeared from  circulation,  and  now  there  was  complaint  of  a 
shortage  of  silver  and  copper  coins.  As  always  is  the  case  in 
the  issue  of  a  depreciated  paper  currency,  a  vicious  circle  was 
established — overissue  made  prices  higher,  and  higher  prices  de- 
manded more  means  of  payment,  and  so  on,  ad  infinittim.  Dur- 
ing the  year  1915  an  appeal  was  made  to  the  people  to  contribute 
gold  to  the  bank  in  exchange  for  bank  notes.  A  bounty  of  8 
per  cent  was  given  for  gold  and  $16,000,000  was  obtained.  By 
an  ukase  of  November  14,  1915,  this  bounty  was  raised  to  30 
l)er  cent.  The  exportation  of  gold  was  limited  in  November, 
1914,  to  $250  for  each  per'^^n  leaving  the  country,  but  in  the 
following  July  it  was  entirely  forbidden. 

The  following  table  shows  the  essential  facts  as  to  the  gold 
reserve  and  the  note  circulation : 

Date  Gold  Reserve  Note  Circulation  Ratio 

1914,  July  8 $800,568,500  $817,055,500  50 

1915,  July  15 789,495,500  1,898,355,500  41 

1915,  September  14 794,421,287  2,105,418,048  39 

1916,  February  16 810,000,000  2,903,000,000  28 

The  Bank  had  been  of  great  service  to  the  government  in 
financing  the  war  up  to  this  time.  Indeed,  the  chief  task  of  the 
Bank  had  been  to  furnish  the  state  with  the  means  of  meeting 
war  expenses.     For  this  purpose  it  not  only  discounted  short 


Rl'SSIA 


125 


tenn  bonds  of  the  Treasury,  but  it  also  helped  to  float  the  war 
loans.  The  Bank  itself  took  two-fifths  of  each  internal  loan 
issued  in  1915,  or  a  total  of  about  $650,000,000.  The  loan  policy 
of  the  government  had  in  the  beginning  been  one  of  almost  ex- 
clusive dependence  upon  short  term  bonds  discounted  by  the 
Imperial  Bank,  or  subscribed  by  private  banks.  They  had  not 
believed  it  possible  on  account  of  the  small  store  of  capital  in 
Russia  to  secure  large  amounts  from  the  people  by  issuing 
popular  loans. 

Borrowings,  1915 

The  year  1915  saw  the  issue  of  three  internal  war  loans,  two 
internal  issues  of  short  term  Treasury  notes,  and  five  issues  of 
Treasury  bonds,  in  addition  to  Treasury  bonds  sold  abroad  and 
credits  obtained  in  foreign  countries.  The  frequency  of  cwn- 
paratively  small  loans  differentiated  Russian  war  finance  from 
that  of  other  countries  where  semi-annual  or  annual  loans  were 
put  out,  as  Germany  and  Austria  in  the  first  case,  and  in  tiit 
second  France  and  Italy.  Russia,  in  the  first  twenty  months  of 
the  war,  issued  five  internal  war  loans  for  an  aggregate  of 
$2,500,000,000.  The  second  war  loan  was  issued  in  February, 
1915,  and  was  a  5  per  cent  ten-fifty  year  bond  issued  at  94,  yield- 
ing to  the  investor  5.35  per  cent.  Subscriptions  amounted  to 
$257,000,000  nominal.  In  April,  1915,  the  third  war  loan  was 
issued.  This  introduced  a  feature  which  was  not  duplicated 
again  in  Russian  finance,  nor  paralleled  in  the  bonds  of  any  other 
country.  The  rate  of  interest  was  fixed  at  5j/2  per  cent  for  six 
years,  and  thereafter  at  5  per  cent.  By  this  temporary  increase 
in  interest  rate,  the  government  was  able  to  sell  the  bonds  at 
99,  at  which  price  they  yielded  to  the  investor  5.7  per  cent  (5.19 
per  cent  after  six  years).  The  redemption  of  the  bonds  was  as 
complicated  as  that  of  the  interest  payments.  Holders  might 
redeem  their  bonds  at  par  in  1921,  and  the  bonds  not  thus  pre- 
sented matured  not  later  than  1926.  The  subscriptions  to  this 
loan  amounted  to  $515,000,000  nominal.  The  fourth  war  loan 
was  issued  in  November,  1915.  This  was  a  5j^  per  cent  ten  year 


126 


DIRF.CT   AM)  I.VDIKECT  COSTS  OK  THK   WAR 


bond  issued  at  95,  at  wliich  price  it  yielded  6.1"  [icr  cent.     Sul>- 
scriptions  amounted  to  S5 1.^,000,000  nominal. 

All  of  these  loans  were  declared  tree  from  la.x  on  revenue 
from  money  capital.  The  lowest  denomination  for  the  bonds 
was  in  each  case  $25,  indicating  an  effort  on  the  part  of  the  gov- 
ernment to  place  the  loan  within  the  reach  of  the  small  sub- 
scriber who,  in  Russia,  would  with  difficulty  subscribe  to  larger 
sums.  The  long  and  short  term  borrowings  of  the  year  1915  are 
grouped  in  the  following  table: 

RUSSIA,   BORROWINGS,  1915 
Date  in  1915  Character  of  Loan  Amount 

Internal :  I'cbruary  6.     49  vear  5  per  cent  bonds $257,000,000 

April  24.  5-10  year  S'A  per  cent  bonds 515,000,000 

October  28.      10  year  S'/i  per  cent  bonds 515,000,000 

March  27.        4  per  cent  short  term  Treasury  notes..         150,000,000 
Augu.st  14.       4  per  cent  short  term  Treasury  notes..         125,000,000 
February  b.  ] 
March  27.      | 

June  18.         15  per  cent  Treasury  bonds 1,350,000,000 

July  15.         I 
.■\ufni.'-t  26.    J 

ForeiK"  :  June  10  and  Sept.  9.     Short  term  5  per  cent  Treasury 

bonds    400,000,000 

March  13.    Xot  specified  credits 312,500,000 

April  6  and  Oct.  9.    Xot  specified  credits 2,850,000,000 

$6,474,500,000 

The  foreign  borrowings  consisted  in  part  of  short  term  Treas- 
ury bonds  discounted  in  Great  Britain  and  France.  The  $50,- 
000,000  one  year  Treasurv-  bills  placed  in  London  in  February, 
1915,  were  renewed  for  another  year. 

The  public  debt,  as  a  result  of  these  credit  operations,  had 
practically  doubled  in  the  year  and  a  half  since  the  outbreak  of 
the  war.  On  January  1,  1914.  it  stood  at  $4,412,000,000.  By 
January  1,  191S,  after  five  months  of  war,  it  had  risen  to  $5,236,- 
500,000,  and  by  January  1,  1916,  it  stood  at  $9,438,500,000, 
an  increase  of  $4,202,000,000  during  the  year  1915. 


Taxes,  1915 


Little  was  done  during  the  year  1915  in  the  imposition  of  new 
taxes,  although  the  Minister  of  Finance  brought  forward  pro- 


RUSSIA 


li7 


posals  looking  to  a  considerable  extension  of  taxation.  The 
budget  estimates  introduced  in  the  spring  of  1915  provided  for 
increases  in  a  large  number  of  existing  taxes  which  it  was  esti- 
mated would  bring  in  $17,050,000.  In  addition,  the  rate  on  the 
capital  value  of  city  realty  was  raised  from  6  per  cent  to  8  per 
cent,  while  the  nomad  hut  tax  in  Asiatic  provinces  was  raised 
from  4  to  8  rubles  a  hut.  Apartment  house  taxes  and  trades 
guild  taxes  were  increased  50  per  cent.  From  these  four  sources 
a  net  revenue  of  $43,350,000  was  expected.  A  further  yield  of 
$47,400,000  was  expected  from  the  increases  in  a  number  of  in- 
direct taxes  such  as  yeast,  cigarette  paper,  matches,  sugar,  naph- 
tha, wine,  beer  and  tobacco.  Finally,  increased  dues  and  rates 
on  a  number  of  government  monopolies  were  expected  to  bring 
in  $146,500,000.  This  sum  was  to  come  from  increased  port 
and  dock  dues,  higher  post  and  telegraph  charges,  and  increased 
railway  rates.  The  total  from  all  these  sources  was  estimated 
at  about  $250,000,000. 

By  the  end  of  the  year  M.  Bark,  the  Finance  Minister,  was 
compelled  to  announce  that  the  actual  receipts  had  fallen  short 
of  the  estimates  by  some  $168,000,000  and  he  outlined  a  pro- 
posed taxation  program  which  should  take  up  this  deficit.  In 
addition  to  a  war  income  tax,  he  suggested  the  establishment  of 
government  monopolies  on  tea,  sugar,  matches,  coffee  and  wine, 
which  he  estimated  would  be  capable  of  producing  about  $150,- 
000,000  annually. 

Expenditures,  1916 

The  civil  budget  for  the  year  1916  was  introduced  into  the 
Russian  Duma  February  29.  M.  Firsoff,  in  his  budget  speech, 
stated  that  the  ordinary  revenue  was  estimated  at  $1,511,024,655. 
The  total  expenditures  were  given  as  $1,779,078,255,  showing 
an  excess  of  expenditure  over  revenue  of  $188,553,595.  From 
the  new  sources  of  revenue  created  since  the  outbreak  of  the 
war,  the  Minister  stated  that  he  expected  more  than 
$250,000,000. 

The  budget  estimates  were  corrected  in  October  when  it  was 


^'li  ;i; 


128 


DIKFXT  AXU  INDIRECT  COSTS  OF  THE   WAR 


announced  that  the  re\enues  of  the  ordinary  budget  were 
$1,999,300,000  and  those  of  the  extraordinary  $39,500,000. 
The  expenditure,  on  the  other  hand,  was  $1,867,000,000  and 
$171,500,000,  respectively.  In  addition  to  these  the  military  ex- 
penditure, which  was  outside  the  other  two  budgets,  reached  a 
total  of  $5,820,000.0  lO  for  the  year.  This  expenditure  was  met 
by  loans  and  the  issue  of  paper  money.  There  was  one  bright 
feature  in  the  financial  situation,  however,  in  that  the  loss  of 
revenue  caused  by  the  abolition  of  the  sale  of  vodka  had  now 
been  made  good  by  the  increased  receipts  from  other  sources. 
The  extraordinary  expenditure,  which  had  grown  so  rapidly,  was 
devoted  to  railway  development  and  to  that  extent  may  be 
regarded  as  an  investment. 

Banking,  1916 

Russian  war  finance  was  comparatively  simple.  The  an- 
nounced policy  was  to  raise  as  much  as  possible  by  means  of 
loans  for  military  expenditures,  and  then  to  make  up  the  differ- 
ence by  an  issue  of  paper  money.  The  war  expenditures  of  the 
year  1915  were  met  to  the  extent  of  65  per  cent  by  bonds  and 
short  term  obligations,  and  for  the  remaining  35  per  cent  b>  the 
direct  printing  of  paper  money.  As  a  matter  of  fact,  the  dis- 
tinction between  the  two  was  more  apparent  than  real  because 
the  issues  of  bonds  and  Treasury  notes  were  paid  for  by  paper 
money,  one  government  obligation  being  used  to  pay  another. 
Nor  was  the  issue  of  bonds  itself  a  relief  to  the  paper  money 
circulation,  because  they  themselves  were  largely  backed  by 
paper  money.  Issues  of  the  Bank  increased  stead ''v  from  year 
to  year.  Between  July  16,  1914,  and  November  lo,  1916,  the 
bank  notes  in  circulation  increased  from  $841,174,000  to  54,241,- 
141,000.  At  the  same  time  the  gold  on  hand  fell  slightly,  but 
the  gold  credits  abroad,  which  were  used  to  support  Russia's 
foreign  exchange  and  to  finance  her  purchases  of  munitions, 
showed  an  enormous  increase.  These  facts  are  shown  briefly 
in  the  following  table :' 

'  Commercial  and  Financial  Chronicle,  January  27,  1917,  p.  333. 


11 
It  > 


Rl'SSIA  129 

RUSSIAN  BANK  NOTES  I\  CIRCULATIOX 

July  16-29.  1914    Xov.  16-29,  1916        Inc.  or  Dec. 

5''r!'  ""M"  $841,174,000       $4241,141,000        +$3,399,967,000 

Gold  on  hand 825.884,000  755,422,000       -       70.467.000 

Foreign  Rold  credit 72,471.000         1.107.104,000        +  l.O34,6W.0OO 

Of  the  bank  notes  i.«siied.  over  SI. 500.000.000  were  paid  by 
discounting  Treasurj^  bonds  and  $500,000,000  to  open  a  credit 
with  Great  Britain.  The  Treasury  bonds  were  discounted  by  the 
Bank  in  return  for  which  the  latter  issued  credit  notes  to  the 
Treasurj-.  The  Treasury,  in  payment  of  its  liabilities  to  the 
public,  put  these  notes  on  the  market.  Thus  as  the  war  went  on 
and  as  the  liabilities  of  the  government  piled  up,  the  number  of 
credit  notes  in  circulation  increased  in  direct  proportion.  The 
addition  of  the  notes  to  the  circulating  medium  was  not  in  re- 
sponse to  any  money  demand  nor  the  result  of  increased  trade 
or  other  activities,  but  was  measured  solely  by  the  needs  of  the 
government  in  financing  the  war.  The  result  was  a  steady  de- 
terioration in  the  value  of  the  ruble  both  at  home  and  abroad. 

In  view  of  the  disturbance  to  foreign  exchange  it  became 
necessary  for  Russia  to  establish  credits  in  foreign  markets.  Ac- 
cordingly, the  Finance  Minister  obtained  credit  in  London  and 
Paris  to  the  amount  of  about  $1,750,000,000  secured  by  bonds 
and  Treasury  bills.  In  addition  to  this,  there  was  a  loan  of 
$100,000,000  secured  from  Japan  in  June,  1916,  and  one  of 
$1 12,500,000  at  Syi  per  cent  and  a  $50,000,000  so-called  "dol- 
lar" loan  bearing  eyi  per  cent  in  the  United  States.  By  the  end 
of  the  year  the  ruble,  nominally  worth  51j4  cents,  had  de- 
creased in  value  to  less  than  25  cents.  While  the  inflation  of  the 
currency  was  primarily  responsible  for  this,  there  were  other 
factors  which  had  an  important  influence  in  the  depreciation  of 
the  nible.  These  were  the  cutting  ofif  of  the  larger  part  of 
Russian  exports,  especially  of  the  export  of  grain ;  the  tying  up 
of  the  railroads  owing  to  their  use  for  military  purposes;  the  dis- 
organization of  the  laboring  population  owing  to  the  general 
mobilization;  the  importation  of  war  supplies  from  the  United 
States  and  Japan;  the  stoppage  of  the  export  of  gold,  and  of 


I 


13t)  DIKKIT    AMI   IXDIUECT   COSTS  OF   THE   WAR 

tlie  redemption  i.i'  Uiiik  notes  in  gold.  Even  without  any  infla- 
tion of  the  lurreticv,  there  is  no  doubt  that  prices  would  have 
risen  as  a  result  of  these  other  factors,  but  the  excessive  issue 
of  notes  serveii  to  make  a  bad  situation  worse. 

(iold  of  course  disappeared  from  circulation  at  the  very  be- 
«innin}>f  of  the  war.  .\  year  later  the  subsidiary  silver  began  to 
Ijc  hoarded  and  to  disappear  from  circulation.  To  replace  this 
small  nickel  coins  of  ten,  fifteen,  and  twenty  kopecks  were  used. 
.\  year  later  these  were  replaced  by  paper  money  in  the  size  of 
I>ostage  stamps,  even  copper  coins  being  displaced  by  paper.  In 
this  experience  Russia  simply  followed  the  example  of  every 
country  which  has  embarked  upon  the  policy  of  unlimited  paf>er 
money. 

I  lioRROWINC.S,    1916 

The  first  large  war  loan  in  Russia  was  the  fifth,  issued  in 
March,  1916.  This  was  a  5'/.  per  cent  ten  year  bond  offered  at 
95,  at  which  price  it  yielded  6.17  per  cent  to  the  investor.  The 
subscriptions  to  this  issue  amounted  to  $1,029,000,000.  The 
sixth  internal  loan  was  issued  in  October,  1916,  and  was  in  all 
resi>ects  like  the  previous  one.  The  yield,  however,  was  SO  per 
cent  greater,  amounting  to  $1,544,000,000.  While  it  is  not  pos- 
sible to  state  the  proportion  of  these  loans  outside  of  Russia, 
there  is  no  doubt  that  they  proved  a  tempting  speculative  oppor- 
tunity due  to  t!ie  low  rate  of  e.xchange.  At  the  time  of  the  issue 
of  the  fifti^  loan  the  ruble  was  worth  only  about  32  cents  in  the 
I'nited  States.  In  addition  to  the  internal  loans,  banking  credits 
were  arranged  in  various  countries  as  already  described.  The 
growth  of  the  ;>ul>lic  debt  may  be  shown  in  the  following  table: 

January  1  Amount  Increase 

1914 14,412,105,000 

1915 5,236,786,000       $824,681,000 

1916 9,438,315,000  4,201,529,000 

1917 12,610,468,500  3,172,153,000 

1917,  Soptcinbcr 28.643.904,349  16,033,435,849 

$24,231,798,849  ; 


RUSSIA 


131 


Taxation,  1916 

Two  noteworthy  taxes  were  introdiKcd  into  Russia  in  the  year 
1916.  The  lirst  of  these  was  a  war  |>rofits  lax.  An  itnperial 
decree  published  May  14.  191(».  imposed  a  temporary  tax  for  the 
years  1916  and  191"  on  excess  profits  of  vDmpanies  and  indus- 
trial undertakings,  and  on  salaries  for  personal  services.  On  the 
former,  profits  of  less  than  «  per  cent  of  the  authorized  capita! 
were  exempt  from  the  excess  i -ofits  tax.  Those  above  8  per  cent 
were  subjected  to  a  tax  ninning  from  8  and  9  per  cent  on  profits 
Iwtween  8  and  20  per  cent  up  to  a  rate  of  40  per  cent  on  profits  in 
excess  of  20  per  cent.  Other  undertakings,  personal  industrial 
vocations,  and  emoluments  of  company  directors  were  taxed  at 
the  rate  of  20  \ier  cent  on  all  profits  above  500  rubles  ($250). 

The  other  tax  which  was  made  law  in  October,  1916,  to  take 
effect  January  1,  191",  was  the  income  tax.  It  is  safe  to  say 
that  this  could  not  have  been  enacted  had  it  not  been  for  the  war. 
It  was  first  projected  in  1905-1907  but  was  blocked  since  that 
time  by  the  landowners  and  the  rich  merchants.  Not  until  1915 
when  M.  Bark,  Minister  of  Finance,  urged  it  upon  the  Duma, 
did  the  project  make  any  advance.  It  passed  the  Duma  in 
.\ugust.  1915,  and  was  finally  approved  by  the  Council  of  the 
Empire  in  1916.  The  tax  was  a  graduated  one  on  all  incomes 
over  $425  a  year,  beginning  nith  1  per  cent  on  that  amount  and 
increasing  to  12>S  per  cent  on  incomes  of  $200,000  or  over. 
The  tax  was  proposed  on  ail  incomes  from  funded  capital,  im- 
movable property,  trade  and  industrial  undertakings,  and  on 
salaries  and  professional  fees.' 

These  two  taxes  affected  only  the  well-to-do  and  the  indus- 
trial classes.  If  the  revenue  from  taxation  was  to  be  increased 
effectively,  it  would  be  necessary  to  get  at  the  incomes  of  those 
with  less  than  $425,  that  is,  the  peasant  class  in  general.  Since 
he  was  no  longer  reached  by  the  vodka  monopoly  plans  were 
suggested  for  securing  contributions  from  his  pocketbodc  by  a 
further  development  of  indirect  taxation  such  as  an  increase  in 


j: 


^Economist  (London),  October  21,  1916,  p.  68>. 


11  ^ 


PI 


Ill 


\^2  IHRKIT  AND  INDIRECT  COSTS  OK  THE   W  AH 

the  su>;ar  tax.  the  consumption  of  which  had  increased  since  the 
aUitition  of  viwlka.  Other  suggestions  took  tlie  form  of  govern- 
ment nionoiwlies. 

Kxi'ENDlTfRES.  1917 

The  preliminary  ci\il  Inidget  for  1917.  which  was  introduced 
into  the  Duma  hy  M.  liark  in  .March,  I'MT,  presented  the  follow- 
ing statement : 

K-tiniateil  ordinary  ffviiuic $1,999,315,000 

expenditure    l!867,.125!o00 

surplus  $131,990,000 

Kxtraor<lin.iry  rrvtnuc  $3,000,000 

ixpeniliturc   171.850,000 

•leticit   $168,580,000 

It  was  estimated  that  the  rc\  cnue  would  be  $480,OOU,000  more 
than  the  191 5  estimate.  The  larger  part  of  this,  or  $285,000,000, 
was  expected  from  the  increased  yield  of  existing  sources.  Of 
the  new  taxes  which  had  been  imposed  the  income  tax  was  ex- 
pected to  yield  $65,000,000;  the  increase  in  the  tobacco  excise 
some  $45,000,000;  the  increase  in  the  sugar  excise  about  $30,- 
000.000.  and  the  war  profits  tax  $27,500,000. 

Before  the  budget  could  he  put  into  effect  the  political  situa- 
tion was  completely  disrupted  bv  the  outbreak  of  the  revoluticm 
(March  15,  1917). 

The  next  report  on  finance  was  made  before  a  Congress  of 
Traders  at  Petrograd  about  the  middle  of  August,  supplemented 
by  further  statements  to  the  Moscow  Conference  about  ten  days 
later  by  MM.  Protopopovich  and  XeckrassofT,  Ministers  of  Com- 
merce and  Finance,  respectively,  in  the  Provisional  Government. 
In  spite  of  the  pressing  needs  of  more  revenue,  M.  Neckrassofif 
told  the  Conference  that  very  little  more  could  be  gotten  by 
direct  taxation,  and  that  funher  indirect  taxation  would  simply 
intensify  the  popular  discontent  and  the  cry  for  higher  wages. 
The  only  solution  of  the  difficulty  was  the  establishment  of  state 
monopolies  of  matches,  sugar  and  tea.     The  suggestion  of  in- 


RUSSIA 


133 


hcritance  taxes  and  the  conscription  of  wealth  the  Minister  re- 
jected, as  these  would  increase  the  dissatisfaction  of  the  upper 
and  middle  classes.  It  is  evident  that  the  financial  program  of 
the  Provisional  Government  was  seriously  handicapped  b>'  polit- 
ical considerations.  How  difficult  the  situation  was  may  be  seen 
from  the  fact  that  the  deficit  announced  at  this  time  amounted 
to  $7,500,000,000. 

The  summarv'  of  war  finance  gi\en  at  this  time  by  M.  Neckras- 
soff,  which  may  be  regarded  as  an  accurate  picture,  is  an  inter- 
esting one  and  shows  the  burden  which  had  been  imposed  upon 
Russian  finance.  The  war  expenditure  was  stated  to  have  been 
for  the  first  year,  $2,650,000,000 ;  for  the  second,  $5,600,000,000: 
for  the  third.  $9,000,000,000:  a  total  for  the  three  years  of 
$17,250,000,000. 

Banks,  1917 

The  increase  in  the  note  circtUation.  and  the  discount  of  Treas- 
ury bonds  by  the  Bank  of  Russia,  as  well  as  the  fluctuations  in 
the  gold  reserve  at  home  and  abroad,  may  be  traced  in  the  follow- 
ing table: 


134 


DIRECT  AND  INDIRECT  COSTS  OF  THE   WAR 


STATEMENT  OF  BANK  OF  RUSSIA,  1914  TO  1917 
(In  thousands  of  dollars) 


% 


Short  Loans 

Advances  to 

Gold 

and  Treasury 

Note            Treasury 

Date 

Home 

Abroad 

Bonds    Circulation  fur  Provision 

1914.  July 

£\. 

$800,750 

171,975 

$196,685 

$817,055 

Aug. 

29. 

803,745 

58,425 

363.995 

1,215,700 

-Sept. 

29. 

806,750 

108,335 

457,140 

1,306,640 

Oct. 

29. 

811,455 

107,750 

522,615 

1.353.140 

Treasury  bonds 

Nov. 

29. 

777,085 

207,625 

211,550 

1,407,350 

Dec. 

29. 

776,820 

207,105 

243,270 

1,431,925 

1915.  Jan. 

29. 

778,665 

76.905 

429,780 

1,498,940 

Feb. 

21. 

784,505 

69,745 

500,485 

1,538,385 

Mar. 

29. 

785,635 

69,910 

565,735 

1,549,140 

April 

29. 

786,605 

69,745 

726,645 

1,638,645 

May 

29. 

787,100 

69,410 

795,975 

1,708,150 

June 

29. 

788,595 

54,295 

774,550 

1,791,285 

July 

29. 

789,300 

45,040 

923,605 

1,915.885 

Aug. 

29. 

792.730 

35,405 

l,18s,360 

2,046,170 

Sept. 

29. 

795,395 

19,245 

1.197,735 

2.310.87i 

Oct. 

29. 

799,130 

17,800 

1,569,985 

2.505.410 

Nov. 

29. 

804,145 

114,255 

1,663,430 

2.532.310 

Dec. 

29. 

805,870 

135,005 

1,622,290 

2.652,310 

1916.  Jan. 

29. 

808,198 

371,371 

1,687,958 

2.802,260 

Feb. 

29. 

810,433 

378^69 

1,890,717 

2,903,243 

Mar. 

29. 

812,854 

473,635 

1.924,697 

2,967.932 

April 

29. 

814.386 

614,554 

1.881.199 

3,127.066 

May 

29. 

770,743 

704,654 

1.760,021 

3,143,083 

June 

29. 

770,143 

794.304 

1.897,612 

3,221.554 

Juiy 

29. 

773,701 

934,044 

1.881,118 

3.376,562 

Aug. 

29. 

775,490 

1.028,550 

1,947,317 

3,480.472 

Sept. 

29. 

776,629 

1.027,564 

2.409,235 

3,652,037 

Oct. 

29. 

779,385 

1,027,478 

2,683,872 

3.922,440 

Nov. 

29. 

733,419 

1,074,858 

3,036,714 

4,117,612 

Dec. 

29. 

736,307 

1.074,923 

3,267,025 

4.295,642 

1917.  Jan. 

29. 

7i7,67i 

1,075,683 

3.563.2.S6 

4,602,309 

Feb. 

21. 

737,470 

1,070.402 

3.820.197 

4.778.596 

Mar. 

29. 

739,770 

1.070,574 

4.169,674 

5.138.904 

April 

29. 

739,907 

1.059.395 

4.686.461 

5.593.279 

May 

29. 

739,738 

1.059.402 

4.526.911 

5.882.666 

June 

29. 

740,463 

1.059,806 

5.096.666 

6,295.996 

July 

29. 

645,809 

1.154.008 

5.581.316 

6.823,026 

Aug. 

29. 

648.966 

1.154.003 

6.018.702 

7.338.086        ^39,524 

Sept. 

29. 

647.611 

1,154.539 

6,697,397 

7.943,476          414,497 

Oct. 

21. 

647,819 

1.154,310 

7.239,663 

8.929,451          622,037 

Do»es  are  of  New  Style  calendar.    Old  Style  are  13  (Uys  later. 
October  21.    1917.   is   last   published   statement  of  the   Bank. 

These  enormous  increases  must  be  accounted  for  in  large  meas- 
ure by  the  nonreceipt  of  taxes  and  other  forms  of  revenue  dur- 
injj  the  revolutionar}-  periofi — an  evil  which  was  mcreasing. 


RUSSIA 


135 


The  necessities  of  the  P  Dvisional  Government  were  too  urgent 
to  jjermit  the  slow  development  of  a  new  sj'stem  of  orderly 
finance.  Like  many  another  provisional  government  without 
adequate  powers  of  securing  revenue,  it  resorted  to  the  easiest 
method  of  raising  funds,  namely,  that  of  printing  ]>aper  money. 
The  issues  amounted  to  about  $100,000,000  to  $125,000,000  a 
week  during  the  summer  of  1917.  By  December  the  issues  were 
as  much  as  $500,000,000  a  month.  By  a  curious  paradox  which 
always  exhibits  itself  on  the  occasion  of  unlimited  issues  of  in- 
convertible paper  money,  the  more  that  was  put  into  circulation, 
the  greater  became  the  difficulty  of  exchange.  With  the  enor- 
mous expansion  went  a  concomitant  depreciation  of  the  ruble. 
People  with  goods  for  sale  refused  to  give  up  the  goods  for  the 
all  but  valueless  paper,  and  trade  rapidly  degenerated  into  a 
primitive  sort  of  barter.  By  the  end  of  October  the  ruble  was 
quoted  in  New  York  at  70.5  per  cent  below  par.  While  the  in- 
flation of  the  currency  had  taken  place  in  practically  e\ery  Euro- 
pean country,  it  was  much  the  gravest  in  Russia,  both  alwolutely 
and  proportionately.  The  note  circulation  increased  from  $817,- 
000,000  at  the  outbreak  of  the  war  to  $8,929,451,000  on  October 
21,  1917.  At  the  same  time  the  gold  reserve  against  which  they 
were  supposed  to  be  issued  had  fallen  from  $800,750,000  at  the 
outbreak  of  war  to  $647,819,000.  The  gold  cover  was  therefore 
only  7.3  per  cent.  In  addition  to  the  note  circulation  the  Bank 
also  l-.;ld  the  short  term  obligations  of  the  Treasury,  as  shown 
by  the  foregoing  table,  which  increased  frcmi  $211,550,000  in 
Novemuer,  1914,  when  they  were  first  shown  as  a  separate  item 
in  the  bank  returns,  to  $7,239,663,000  on  October  21,  1917,  the 
last  date  jn  which  a  bank  statement  was  issued. 

Borrowings,  1917 

In  March,  1917,  Russia  issued  the  seventh  internal  war  loan. 
This  was  a  5  per  cent  bond  redeemable  in  ten,  and  payable  in 
seventy-five  years,  issued  at  85,  at  which  jMice  it  yielded  5.93 
per  cent  to  the  investor.  This  loan  marks  a  reversal  in  previous 
policy  in  two  or  three  respects.     In  the  first  place  the  interest 


'^n 


1 


(I,  ^ 


i   ■ '' 


136 


DIRECT  AN-D  INDIRECT  COSTS  OF  THE  WAR 


rate  was  reduced  from  5.3  per  cent,  at  which  point  it  had  been 
fixed  in  the  last  three  loans,  to  5  per  cent;  because  of  this  it 
was  necessary  to  sell  the  bonds  at  a  considerable  discount:  and 
finally,  the  long  maturity  of  the  loan  distinguished  it  from  the 
bonds  issued  liy  most  of  the  other  nations.  However,  it  was 
successful  in  yielding  a  larger  amount  in  subscriptions  than  any 
previous  loan,  though  the  great  depreciation  in  the  paper  money 
made  the  real  purchasing  power  of  the  proceeds  probably  less 
than  the  smaller  amounts  of  the  earlier  loans.  The  subscriptions 
were  $2,058,000,000. 

The  Provisional  Government  offered  a  new  loan  of  $1,500.- 
000.000  in  May.  1917.  the  so-called  "New  Russian  Liberty 
Loan."  This  was  a  5  per  cent  forty  year  bond  issued  at  85. 
Half  was  offered  to  the  public,  a  syndicate  of  bankers  taking  the 
other  half. 

The  Government  of  the  United  States  extended  to  Russia  a 
credit  loan  of  $97,500,000  during  the  year  1917.  The  Russian 
Provisional  Go\  eminent  also  obtained  a  credit  in  Japan  of  $333,- 
333,000  through  the  sale  of  that  amount  of  Treasury  bills  to  the 
Japanese  Government.  The  issue  bore  6  per  cent  interest  and 
had  a  maturity  of  one  year  and  was  taken  by  Japan  t  par,  the 
proceeds  to  be  used  in  paying  for  munitions  of  war  bought  in 
Japan. 

The  debt  of  Russia,  which  at  the  outbreak  of  the  war  amounted 
to  $4,412,154,000,  increased  during  the  first  two  and  one-half 
years  to  $12,610,500,000  on  January  1,  1917.  Under  the  Pro- 
visional Government  the  increase  was  nearly  as  much  in  the  next 
seven  months  as  it  had  been  for  the  precedin;;  twenty-nine.  On 
August  1,  1917.  it  amounted  to  $25,000,000,000. 

Taxation,  1917 

Owing  to  the  disturbed  political  situation  and  the  uncertain 
powers  of  the  Provisional  Government,  little  could  be  done  in  the 
w  ay  of  new  taxation  or  even  in  the  enforcement  of  existing  laws. 
In  June,  1917.  hmvexer,  an  emergency  inccwne  tax  was  levied  for 
the  year  1917.    This  was  levied  on  all  persons  and  organizations 


RUSSIA 


13/ 


liable  that  year  to  the  ordinary  income  tax  if  the  taxab)-  income 
were  asssessed  at  over  $5,000.  On  the  other  hand,  it  was  stete'l 
that  the  excess  profits  tax  was  proving  ruinous  because  of  the 
increase  in  the  price  of  raw  materials  and  labor,  and  would,  if 
enforced,  in  many  cases  destroy  the  industrj-.  It  was  therefore 
proposed  to  defer  the  levy  of  this  tax  until  next  year,  and  pro- 
vide for  its  payment  in  instalments.  Under  the  circumstances 
little  could  be  expected  from  these  taxes  and  as  conditions  be- 
came more  and  more  unsettled  the  revenue  from  all  sources 
showed  a  steady  decline. 

Expenditures,  1918 

Toward  the  end  of  the  year  1917,  the  Provisional  Government 
was  displaced  by  the  Bolshevik  regime.  If  conditions  were  dis- 
organized previously,  they  now  became  chaotic.  The  revenues 
of  the  govermnent,  reduced  by  political  disorder,  were  still  fur- 
ther cut  down  by  the  treaty  of  Brest-Litovsk  with  Germany  of 
March  3,  1918.  According  to  this,  Russia  lost  territory  contain- 
ing one  third  of  her  railway  mileage,  73  per  cetit  of  the  total  iron 
production,  89  per  cent  of  the  total  coal  production,  and  a  great 
number  of  sugar  refineries,  textile  factories,  breweries,  chemical 
plants,  paper  mills,  and  other  establishments.  The  territon, 
which  now  became  German  had  brought  in  annual  revenue 
amounting  to  $422,500,000.  In  addition  to  the  loss  of  revenue, 
Russia  was  also  burdened  with  a  heavy  cash  indemnity  amounting 
to  $3,000,000,000. 

Banking  and  Currency,  1918 

With  the  breakdown  of  all  orderly  government  under  the  Bol- 
sheviki  and  the  cessation  of  the  orderly  collection  of  revenue 
from  the  usual  sources,  the  new  government  soon  faced  a  des- 
perate situation.  Utterly  without  credit,  it  was  of  course  unable 
to  raise  funds  by  means  of  loans.  Indeed,  the  Central  Executive 
Committee  of  the  Soviet  by  decree  of  January  21,  1918,  repu- 
diated all  debts  incurred  by  the  capitalistic  bourgeois  govern- 
ment to  the  end  of  December,  1917.     Accordingly,  there  was 


il 


138 


UIRKCT   AND  INDIRECT  COSTS  OF  THE  WAR 


^M5 


If 


unly  one  resource  open  to  the  new  government  for  raising  funds, 
and  that  \\  as  the  issue  of  paper  money.  The  monetary  system  of 
Russia  which  had  been  established  by  Witte  had  been  under- 
mined during  the  war  and  was  now  completely  overthrown. 
When  Lenine  grasped  iK)wer  the  note  issues  had  reached  about 
810,000,000,000.  The  Iiolsheviki.  unfortunately,  came  into  pos- 
session of  the  enJ,'r^^•e(l  plates  and  machinery  for  printing  the 
notes  which  were  at  I'etrograd.  The  printing  presses  were  soon 
busy  turning  out  jxaper  at  the  rate  of  about  $1,500,000,000 
monthly.  At  the  end  i»f  June  it  was  estimated  the  amount  of 
paper  mone\-  in  circulation  aggregated  $20,000,000,000.  Premier 
Lenine  announced  in  May  that  new  mone>  would  be  issued  and 
the  old  money  devalued.  To  anyone  familiar  with  the  histor>- 
of  paper  money  of  the  French  Revolution,  this  declaration  must 
have  had  a  familiar  rins,'.  Although  the  Bolsheviki  were  not  able 
to  organize  an  orderly  financial  system,  they  were  able  to  secure 
the  necessary  funds  by  seizing  the  bunks  and  "nationalizing" 
them.  They  secured  assets  aggregating  some  $15,000,000,000. 
Seizure  of  other  funds,  both  state  and  private,  provided  them 
w  ith  the  money  necessary  for  carrj'ing  on  their  propaganda  and 
maintaining  themselves  in  power. 

It  is  practicall}-  impossible  to  secure  any  definite  information 
about  the  subseciuent  financial  situation  in  Russia  as  bank  state- 
ments were  suspended  as  soon  as  the  Bolsheviki  came  into 
control. 

Borrowings,  1918 

Since  the  Bolshe\  iki  repudiated  the  existing  Russian  debts,  it 
was  of  course  illogical,  as  well  as  impossible,  for  them  to  secure 
funds  by  means  of  loans.  This  action,  however,  caused  a  great 
deal  of  anxiety  among  holders  of  Russian  bonds  and  many  esti- 
mates were  made  as  to  the  extent  of  these  holdings.  The  French 
holdings,  which  were  larger  than  those  of  any  other  nation,  were 
estimated  by  the  F'resident  du  Syndicat  des  Agentes  de  Change 
of  Paris  at  S2.400,000,000,  although  this  was  undoubtedly  a  con- 
>enative  estimate,  and  by  some  writers  has  been  placed  as  high 


RUSSIA 


139 


as  $5,000,000,000.  (ierman  interests  amounted  to  probably 
$375,000,000 ;  the  hr>ldings  of  the  British  were  probably  not  over 
$750,000,000.  But  the  British  Government  had  made  credit 
advances  to  the  Russian  Government  during  the  war  in  the  sum 
of  $2,840,000,000.  Similar  advances  by  the  United  States  Gov- 
ernment totaled  $188,000,000,  while  private  loans  in  United 
States  were  nearly  as  large. 

Taxation,  1918 

In  lieu  of  taxation  the  Bolsheviki  instituted  a  system  of  "na- 
tionalizing" industries.  If  this  were  done  universally,  there 
u  ould  be  of  course  no  room  for  taxes.  The  experiment  made  in 
nationalizing  industries  was,  however,  a  most  costly  one  and 
entailed  enormuus  deficits,  that  in  the  1918  budget  being  officially 
estimated  at  $]0,500,0aj,000.  Revenues  from  some  source 
were  desperately  needed,  other  than  the  worthless  paper  money, 
and  the  Soviet  government  accordingly  imposed  a  capital  levy 
on  wealth,  payable  between  October  31  and  December  15,  1918. 
This  was  estimated  to  bring  in  $5,000,000,000,  but  yielded  only 
t«ie  ten-thousandth  of  that  sum.  A  tax  in  kind  on  foodstuffs 
on  the  richer  peasants  was  found  to  be  impossible  of  collection. 
The  complete  failure  of  direct  taxation  is  due  in  large  measure  to 
the  extreme  decentralization  of  power  and  the  levy  by  the  local 
Soviets  of  "contributions"  which  are  really  forced  payments  in 
kind.  With  the  practical  ces.eation  of  foreign  trade,  custwns 
duties  came  to  an  end  and  with  the  naticmalization  of  industry 
there  was  no  room  for  excise  taxes.  There  was  no  place  for  a 
national  system  of  taxation. 

Cost  ok  the  War 

Owing  to  the  revolutions  in  Russia  it  is  very  difficult  to  esti- 
mate the  cost  of  the  war  to  that  country.  For  the  purposes  of 
this  study,  however,  they  may  be  considered  to  have  ended  with 
the  year  1917.  The  war  expenditures  and  receipts  for  the  period 
August  1,  1914.  to  December  31,  1917,  are  shown  in  the  follow- 
ing table : 


w 

! 

' 

< 

1' 

i 

m^ 


m 


140  UIKECT   ANU  INDIKECT  COSTS  OF  THE  WAR 

WAR  EXPENDITURES  AND  RECEIPTS  OF  RUSSIA.  1914-1917 

Receipts 
P*'"''"'  Expenditures  Loans  Paper  Money 

August  1-December  31.  1914.    $1,273,000,000       1 1.3 10.000.000        $614,870,000 

Ca  endar  year     9  5 4.687.4SO.00O         6.474.S0O.00O        1 .220  385  000 

Calendar  year   1916  7.633.500.000         4.217.835.000        1.643  332  000 

January  1  to  Sept.  1.  1917..      9.000.000.000  4.828,000.000        4.633.809;fl00 

$22,593,950,000      $16,830,335,000      $8.112..196.000 

To  this  war  expenditure  should  be  added  the  growth  above  pre- 
war normal  in  the  civil  budgets,  amounting  to  $1,790,000,000. 
and  to  the  receipts  should  be  added  the  increase  in  revenues  over 
prewar  normal,  amounting  to  $377,000,000.  This  would  there- 
fore give  the  following  result: 

Actual    war    expenditure $22,593,950,000 

Increase  m  civil  budgets  during  war  period 1,790,000,000 

„      .  Total .$24,383,950,000 

Receipts    $24,942,731,000 

Increased  revenue  377,000,000 

$25,319,731,000 

The  costs  of  war  as  reflected  in  the  growth  ot  the  Russian  debt 
may  be  seen  in  the  following  table : 

^*e  Amount 

Prewar   $4,414,000,000 

January  1,  1915 $5,237,000,000 

January  1.  1916 9,438,000,000 

January  1.  1917 12,610,469,000 

September,  1917  28,643,905,000 

Net  growth  $^4,23 1,798,849 

As  $8,929,000,000  of  this  is  non-interest  bearing  tmsecured  paper 
money,  the  interest  bearing  debt  due  to  the  war  is  about 
$15,700,000,000. 

In  the  following  table  an  attempt  is  made  to  itemize  this  debt : 


RUSSIA 


141 


WAR  LOANS  OF  RUSSIA,  OCTOBER  31,  1917 

^orm  Amount 

5  per  cent  loan.  October,  1914  (nominal)   $257,500,000 

5  per  cent  loan,  February,  1915  (nominal)   257,500  000 

5K-  per  cent  loan.  May,  1915  515,000^000 

5'A  per  cent  loan,  November,  1915   515,000,000 

5'A  per  cent  loan,  April,  1916  l,029i000!00O 

S'/i  per  cent  loan,   November,   1916 I,'544io00io00 

5  per  cent  loan.  April,  1917  2!o58!00o'00O 

Advances  by  Great  Britain  2,840,000.000 

Advances  by  U.  S.  Government 188.000000 

Advances  by  Japan  333!o0o!o00 

Private  loans  in  United  States 162,500.000 

Treasury  bills  held  by  Bank  of  Russia 7^39.^,000 

Bills  discounted  in  France  (estimated)   1.085.000.000 

$18.Q24.163.00a 


ii 

i 


•J 

h 


u 


\, 


ITALY 

KXPENDII  LTRKS,  1914-1915 
Altliough  Ital)  delayed  her  entrance  into  the  war  until  May  24. 
1915,  her  war  expenditures  may  be  said  to  have  begun  at  the 
same  time  as  those  of  the  other  belligerents  whose  active  par- 
ticipation commenced  earlier,  for  the  costs  of  armament  and 
mobilization  during  the  months  of  preparation  entailed  heavy 
burdens.  When  the  war  broke  out,  Italy  was  just  recovering 
financially  from  the  elTects  of  her  war  with  Turkey  and  the  Trip- 
oli expedition.  Italy's  prosperity  depends  largely  upon  tourist 
trade  and  on  lier  exix>rts  of  wine,  olive  oil,  and  other  semi- 
luxuries.  These  were  seriously  curtailed  by  the  outbreak  of  the 
World  W  ar,  and  the  government  receipts  were  adversely  affected. 
During  the  period  of  preparation  from  August  1,  1914,  to  May 
24,  1915,  Italy,  though  not  at  war,  put  her  army  and  navy  in 
fighting  trim  and  called  out  the  reserve  men,  but  did  not  effect  a 
general  mobilization.  The  expenditures  during  this  preliminarv 
period  (August  1,  1914,  to  May  30,  1915)  amounted  to  $60/!- 
840,000.  \\'ith  the  beginning  of  actual  belligerency,  expendi- 
tures mounted  by  leaps  and  bounds,  the  monthly  expenditure 
being: 

^"''°^                                                                                   .\rmy  Navy 

June.  19L-.  $79,320,000  $1.1,440.000 

•'"'y    92,040.000  10,080.000 

-^"K""*   81.080.000  16,060.000 

September  87,800.000  10,600.000 

2'='°*'«r    100.620,000        13,300,0O> 

November   91,680,000        10,320,000 

December    130,180,000        12,420.000 

$662,720,000      $86.220.00ii 
R.\NKING  AND  CrRHENCV,    1914-15 

As  in  the  case  of  France,  the  government  turned  first  for  finan- 
cial assistance  to  the  Bank  of  Italy,  and  to  a  lesser  extent  to  the 
Banks  of  Naple.s  and  Sicily— these  being  the  three  banks  of  issue 
in  Italy,  and  bound  by  their  charters  to  make  certain  statutor\- 


ir.M,Y 


143 


advances  to  the  govertiment.  For  the  fiscal  year  ending  June  30. 
1915,  the  advances  to  the  state  amounted  to  $322,700,000.  As 
payments  in  Italy  are  generally  made  in  cash  and  deiwsit  banking 
is  bwt  little  developed,  the  state  credits  were  almost  necessarily 
met  by  increased  issues  of  bank  notes.  On  July  31,  1914,  these 
had  stood  at  $453,040,000,  but  by  June  30,  1915.  they  had  reached 
$771,200,000.  The  state  note  issues  showed  a  still  more  rapid 
augmentation,  standing  at  $99,820,000  on  July  31,  1914,  and 
reaching  $153,160,000  by  June,  1915.  The  total  note  issues  to 
meet  war  expenditure,  to  June  30.  1915.  therefore  was  $475.- 
860,000.  This  inflation  of  the  currency  had  the  undesirable  effect 
of  increasing  prices  and  raising  the  cost  of  living  and  of  the  war. 
During  this  period  prices  of  foodstuffs  rose  on  the  average  about 
32  per  cent.  This  was  a  poor  policy  at  the  beginning  of  the  war. 
because  it  necessitated  the  raising  of  a  still  larger  amount  in  taxa- 
tion and  loans  later  on,  for  which  the  policy  of  the  state  was  in 
part  at  least  responsible.  A  measure  of  the  depreciation  of  the 
lira  due  to  this  overissue  is  to  be  found  in  the  foreign  exchange 
rates  which  had  fallen  about  25  per  cent  by  the  end  of  the  fiscal 
year,  June  30,  1915. 

Lo.xxs,  1914-15 

The  year  1915  saw  borrowing  on  the  part  of  the  state  take  the 
form  both  of  the  issue  of  Treasury  bills  and  of  war  loans.  Dur- 
ing the  fiscal  year  ending  June  30.  1915,  Treasury  bills  issued  by 
the  government  for  the  purpose  of  meeting  the  cost  of  war 
amounted  to  $309,700,000.  During  the  following  fiscal  year  the 
amount  was  only  half  as  great,  or  $145,000,000.  The  reason  for 
lessened  resort  to  temporary  borrowing  was  because  of  the  flota- 
tion of  long  term  bonds  during  this  period.  The  first  of  the  war 
loans  (the  so-called  Mobilisation  loan)  was  issued  by  the  govern- 
ment in  January,  1915.  It  was  a  4J<^  per  cent  bond  issued  at  97 
and  was  redeemable  in  1925.  payable  in  1940.  At  this  price  the 
yield  was  about  4.71  per  cent.  In  July  of  the  same  year  the  so- 
called  first  JVar  loan  was  brought  out.  This  was  a  4J^  per  cent 
bond  issued  at  95,  but  the  price  was  reduced  to  93  for  subscribers 
who  held  definitive  bonds  or  temporary  certificates  of  the  Mobili- 


»'  1 


I 


144  UIKEIT   AM)  IXniKKCT   COSTS  f)F  TIIK   WAR 

zaiion  li>an  issued  in  the  preceding  January  to  an  amount  not 
greater  than  their  Mil»scription  to  this  loan.  At  these  prices  the 
yield  was  4.85  and  4,99  respectively.  The  date  of  maturity  was 
1925-1940.  the  same  as  the  Mobilization  loan.  Both  issues  were 
e.xempt  from  taxes,  and  were  convertible  into  future  loans  issued 
before  the  end  of  1916.  The  smallest  denomination  of  each  issue 
was  $20.  .\s  in  the  case  of  so  many  other  belligerents,  the  pur- 
chase of  bonds  was  made  easy  to  the  subscriber  by  authorizing 
the  three  Italian  banks  of  issue  to  make  advances  against  the 
pledge  of  the  lx>nds.  In  the  case  of  the  first  loan  borrowers  could 
seaire  their  money  at  4'  .•  per  cent  per  annum,  and  borrow  up  to 
95  per  cent  of  the  face  value  of  the  bonds.  In  the  case  of  the 
second  loan  the  rite  of  interest  was  raised  to  5  per  cent  and  the 
figure  at  which  the  bonds  were  to  be  received  was  fixed  at  90  to 
95.  Moreover,  such  loans  were  exempt  from  the  special  tax  on 
advances.  The  government  availed  itself  of  the  assistance  of  a 
syndicate  of  banks  to  assist  in  the  flotation  of  these  loans.  This 
procedure  was  followed  in  all  the  war  loans  of  Italy.  The 
amount  subscribed  to  the  Mobilization  loan  was  $200,000,000, 
and  the  nominal  yield  of  the  first  war  loan  was  $229,200,000. 
Almost  immediately  upon  Italy's  entrance  into  the  war,  Great 
Britain  lent  financial  assistance,  and  by  the  end  of  the  fiscal  year, 
June  30,  1915,  the  foreign  loans  covered  by  special  Treasury 
bonds  amounted  to  $208,040,000.  The  financial  transactions  to 
meet  war  expenditure  to  June  30,  1915,  may  therefore  be  summed 
up  as  follows : 

BORROWINGS  OF  IT.ALY,  .\UGUST  1,  1914,  TO  JUNE  30,  1915 

Form  Amount 

Mobilization  loan  $200,000,000 

Foreign  loans  through  special  Treasury  bills 208,040,000 

State  notes  153,160,000 

Advances  of  bank  notes  from  bajik>  of  issue 322,700,000 

$883,900,000 
Taxation,  1915 

The  financial  policy  of  Italy  showed  some  curious  changes 
(luring  the  first  two  years  of  the  war,  which  on  the  whole  marked 


ITALY 


145 


a  noteworthy  progress  from  inflation  by  note  issues  and  bank 
advances,  through  short  term  borrowings  by  the  issue  of  Treasury 
bills,  and  finally  to  the  flotation  of  long  term  bonds.  This  was 
accompanied  by  the  development  of  a  more  vigorous  tax  policy  as 
time  went  on.  It  may  fairly  be  said  that  in  the  first  period  of 
the  war  it  would  have  been  impossible  to  meet  the  growing  ex- 
penditures without  recourse  to  note  issues,  .\fter  the  country 
had  become  adjusted  to  a  war  basis  the  necessity  of  loans,  of 
greater  economy  in  expenditures,  and  of  new  taxes,  was  insisted 
upon.  The  government  endeavored  to  introduce  economy  bv  a 
decree  of  November  18,  1915.  by  which  it  suspended  all  new 
appointments  of  public  servants,  ordained  that  the  number  of 
commissioned  public  officials  be  reduced  by  one-fifth,  reduced 
office  expenditures  from  10  to  20  per  cent,  and  took  other 
measures  lodting  to  the  same  end. 

New  taxes,  and  the  increase  of  existing  ones,  were  provided 
for  almost  from  the  beginning,  the  character  and  variety  of  these 
being  a  striking  commentary  upon  the  strain  t6  which  the  fiscal 
resources  of  the  country  were  being  put.     The  receipts  for  the 
last  fiscal  year  before  the  war.  ending  June  30.  1914.  amounted 
to  $632,046,000,  taxation  yielding  about  $466,600,000  of  the 
total  revenue.     Prior  to  the  war  taxes  were  levied  on  land,  in- 
come, business  transactions,  necessary  products,  such  as  oil,  bicy- 
cles, automobiles,  and  other  articles.    Customs  duties  also  con- 
stituted an  important  source  of  revenue.     The  government  had  a 
monopoly  on  the  manufacture  and  sale  of  tobacco  and  matches, 
tk-  sale  of  salt  and  quinine,  also  postal  facilities,  telephone,  tele- 
graph and  government  control  of  railroads,  as  well  as  certain 
steamship  lines.     The  decline  in  customs  and  other  taxation 
which  the  disorganization  of  shipping  and  export  trade  would 
suffer  as  a  consequence  of  the  war,  was  to  a  great  extent  modified 
by  an  increase  in  the  prices  of  all  monopolized  articles;  postal, 
telephone,  and   telegraph   rates   were  raised,   new   government 
monopolies  created,  and  new  taxes  introduced.     As  these  new 
measures  were  imposed  almost  at  the  beginning  of  the  fiscal  year, 
they  not  only  made  up  what  would  otherwise  have  been  a  deficit 


si 


146  IJtkKlT    VXD  INPIHECr   COSTS  OK  THK   WAR 

of  about  $I75.<XK).000,  hut  actually  increased  the  receipts  of  the 
fiscal  year  1915  to  the  total  of  $809,340,114. 

With  the  advent  of  belligerency,  however,  the  demands  upon 
revenues  would  be  much  greater,  and  a  series  of  measures  which 
had  been  provided  for  in  the  royal  decree  of  October  15,  1914, 
enacted  into  law  in  December,  1914,  were  levied  under  legislative 
decrees  of  September  15,  October  15,  and  November  21,  1915. 
These  impositions  fell  undei  two  heads:  (1)  levies  that  were 
expected  to  become  permanent,  and  (2)  taxes  of  a  provisional 
character.  Under  these  classifications  were  levied  the  following 
taxes  with  their  estimated  yields. ' 

1— Taxes  of  a  IVTinaiient  Character  :  Eitimated  VicW 

(a)  Income  and  busineit  taxes: 

Income  and  business  transactions $20,000,000 

MiliUry   tax    3,000,000 

Managers  of  limited  liability  companies 600,000 

War  farthing  Ux 11,600,000 

Changes  in  tax  on  transfers,  etc    8,600,000 

Qiangrs  in  registration  Ux  800,000 

$44,600,000 

(I))  Increase  in  postal  rates 2,200,000 

(c)  Increase  on  superfluous  commodities: 

Tobacco  KOOaOOO 

Spirits  1,400,000 

Beer    800,000 

Petrol,  mineral  oil,  etc 1200,000 

7.400,000 

(di  New  taxes  (111  primary  necessities: 

Salt  $4,000,000 

Matches   700,000 

Sugar   2,000,000 

Bicycles   480.000 

7,180.000 

Total  estimated  yield  of  taxes  under  Gass  I $61,380,000 

II — Taxes  of  a  Provisional  Character : 

War  profits  tax   $10,800,000 

Abolition  of  privilege  in  registration  tax 5,400,000 

Import  I'mbarRoes.  etc 2,800,000 

19.000,000 

Tmal.  both  classes  $80,380,000 

'  liionomisi  (London^.  December  25.  1915.  p.  1055. 


TTALY  147 

The  military  tax  alx>vt  alluded  to  was  imposed  upon  men  be- 
tween 20  and  39  years  of  agt  exempt  from  milttory  service.  This 
was  a  poptiar  tax.  as  it  tended  to  equalize  the  lot  of  thoM  who 
stayed  at  home  with  the  men  who  were  called  to  the  colors.  The 
tax  was  imposed  for  the  period  of  liability  to  military  service  of 
those  who.  for  one  reason  or  another,  were  exempt  from  active 
duty.  It  applied  to  all  except  those  wholly  unfit  for  work  or 
whose  mcome  was  less  than  $400  annually.  The  tax  progressed 
from  $1 .20  on  incomes  of  $200.  up  to  $601  on  incomes  of  $40,000 
and  over. 

Expenditures,  1916 

The  war  expenditure  for  the  fiscal  year  ending  June  30,  1916 
amounted  to  $1,670,300,000,  or  a  total  from  August  1,  1914,  of 
$2,278,140,000  This  meant  a  mean  monthly  expenditure  of 
$140,000,000.  and  a  daily  sum  of  $4,640,000,  and  caused  an  in- 
crease in  the  public  debt  as  shown  in  the  following  table : 

.  ^^li,   .o.^  ^P'**'                 InttTtU 

jZImmS $2.967300.000  «04.«».000 

Wjo'    01« 3.185.400.000          114.400.000 

June  30,  1916 3.»S8.00a000           IHOOOflOO 

The  increase  in  expenditure,  not  fully  shown  in  the  debt  increase. 
IS  found  in  the  Iar?e  floating  debt  which  on  June  30,  1916 
amounted  to  $1,285,600,000,  making  the  real  total  debt  $5  243  - 
600.000. 

Banking  and  Currency.  1916 

During  this  year  every  eflFort  was  made  to  mitigate  the  effects 
of  inflation,  and  the  mcrease  in  bank  notes  to  the  state  during  this 
period  amounted  only  to  $108,820,000.  as  against  $322,700,000 
the  year  previous.  Direct  issues  by  the  state  reached  $227,000.- 
000  by  the  end  of  the  fiscal  year.  An  eflF(irt  was  made  to  widen 
the  use  of  checks,  and  thus  limit  the  issue  of  bank  notes. 

BoRRowiNas.  1916 
Italy  financed  her  war  expenditure  of  this  period  by  the  issue 
of  the  first  war  loan  already  described,  and  by  the  second  war 


H 

7 
f 


148 


DIRECT  AND  INDIRECT  COSTS  OF  THE  WAR 


i: 


loan,  issued  in  Januar>%  1916,  which  was  a  5  per  cent  ten-twenty- 
five  year  bond,  issued  at  97.5,  yielding  approximately  5.18  per 
cent.  In  the  flotation  of  this  issue,  provision  was  made  for  the 
funding  into  the  new  loan  of  the  short  term  obligations  which 
the  Treasury  had  been  issuing,  and  also  for  the  conversion  of 
the  previous  4j/j  per  cent  war  loan.  Therefore,  payment  for 
subscriptions  might  be  made  in  the  following : 

(a)  Ordinary  Treasury  notes  at  par  to  the  full  amount  of  the 
subscription ; 

(b)  Five  year  Treasury  bonds  due  in  1917  at  99,  and  in  1918 
at  97.80,  up  to  half  the  amount  of  the  subscription ; 

(c)  41/^s  of  the  July,  1915,  war  loan,  the  subscriber  to  pay  50 
cents  for  each  $20  par  value  converted,  to  equalize  the  difference 
in  the  issue  price. 

The  bonds  of  this  issue  were  exempt  from  all  present  and 
future  taxation.  The  subscriptions  amounted  to  $602,800,000, 
of  which  $460,000,000  represented  new  money,  and  $142,800,000 
converted  securities,  about  $100,000,000  of  the  conversions  being 
the  July,  1915,  4j^s.  The  money  received  fro-  the  two  long 
term  loans  therefore  amounted  to  $901,960,00.  aominal,  and 
$681,880,000  net, 

EKiring  this  year,  the  net  advances  from  banks  amounted  to 
$108,820,000,  or  a  total  to  that  date  of  $431,520,000,  and  there 
was  also  a  net  increase  in  state  notes  of  $73,840,000 — or  a  total 
creation  of  debt  to  the  amount  of  $182,660,000  by  this  means. 
The  net  ordinary  Treasury  bills  yielded  $45,000,000,  and  the 
special  Treasury  bills,  which  covered  foreign  loans,  made  a  net 
increase  of  $480,000,000.  These  foreign  placed  bills  were  dis- 
tributed in  England  and  the  United  States,  the  loan  here  being 
for  $25,000,000  in  the  form  of  one  year  6  per  cent  gold  notes 
placed  through  private  bankers. 

The  creation  of  debt  for  the  purpose  of  meeting  the  cost  of  the 
war  (luring  this  year  was  therefore  as  follows : 


ITAI.V  I41) 

BORROWINGS  DURING  FISCAL  YEAR,  1915-16 

Source  . 

-,      .   ,     ,  ,  Amount 

Funded :  1st  war  loan,  July,  1915   (nominal) $229200000 

2d  war  loan,  January,  1916 6Q2Wnn) 

Floating :  Ordinary  Treasury  bills  $147,0OO,666* ' '  "^'"""'"^ 

Special  Treasury  bills 480000000 

State  notes,  net 733«!a00 

Advances  from  banks  106,820,000 

$809,660,000 

Taxation,  1916 

Due  to  the  new  levies  imposed  in  the  latter  part  of  1915,  the 
total  revenues  of  Italy  for  the  fiscal  year  ending  June  30,  1916. 
were  $601 ,405.400— a  decrease  of  some  $208,000,000  in  revenue 
under  1915,  although  it  represented  an  increase  in  actual  tax  re- 
turns of  some  $75,000,000.  This  decrease  was  due,  of  course, 
to  Italy's  actual  entrance  into  war,  the  withdrawal  of  men  from 
usual  occupations,  and  the  consequent  disruption  of  ordinary- 
business  with  its  attendant  depletion  of  normal  taxation.  The 
yield  of  actu  1  war  taxation  in  1915-16  was  $100,784,488.  The 
war  profits  tax  did  not  actually  become  operative  until  1917.  and 
during  this  period  the  invasion  of  Italy  did  not  help  revenues. 
While  Italy's  effort  at  taxation  was  praiseworthy,  it  was  as  yet 
ineffective,  as  the  interest  on  the  growing  war  debt  for  1915-16 
amounted  to  $154,000,000,  while  the  war  taxation  had  yielded 
only  $100,784,488.  and  the  falling  off  in  ordinary  taxes  had 
depleted  the  yield  by  about  $25,000,000.  The  cost  of  war  was 
running  steadily  ahead,  averaging  now  about  $200,000,000  a 
month. 

Banking  and  Currency,  1917-1918 

The  issues  of  the  banks  continued  through  the  fiscal  years  1917 
and  1918  and  resulted  in  a  prc^essive  depreciation  of  the  value 
of  the  lira,  and  a  ccmstant  rise  in  prices.  At  the  beginning  of 
1917  the  total  circulation  had  reached  $1,455,120,000.  and  by 
the  end  of  that  calendar  year  stood  at  $2,034,760,000.  which 
was  distributed  as  follows : 


;i 


150  DIRKCT  AND  INDIRECT  COSTS  OF  THE  WAR 

Bank  of  Italy  $1,307,840,000 

Banks  of  Naplo  and  Sicily 377,160,000 

Issues  hy  tin-  siaU- 349,760,000 

$2,034,760,000 

i'his  was  over  12  per  cent  of  the  total  wealth  of  the  country, 
which  was  estimated  at  "'SI 6,400,000,000.  The  imposition  by  the 
}>i>\erninent  of  a  tax  of  20  centesimi  on  each  check  prevented 
their  wide  use,  though  the  banks  had  tried  to  encourage  the  in- 
troduction of  checks  to  lessen  the  note  issues.  The  nominal 
wealth  of  the  country,  owing  to  the  increase  in  prices,  was  ap- 
parently increasing.  Deix)sits  in  savings  banks,  especially,  showed 
a  remarkable  gain  since  the  outbreak  of  the  war.  In  1914  these 
had  totaled  about  $1,1.50,000,000,  and  by  the  end  of  March. 
1918.  they  had  increased  to  about  $1,700,000,000,  showing  a 
gain  .of  almost  $600,iX)0,000.  Of  this  sum  $758,800,000  were 
deposited  in  .savings  l>anks,  $553,400,000  in  postal  savings  banks, 
$261,000,000  in  the  four  larger  banks  of  Italy,  and  $146,200,000 
in  the  three  note  issuing  banks.  These  figures  would  seem  to 
indicate  that  the  deposits  represented  saving^,  rather  than  credit 
deposits  against  discounts.  Owing  to  the  inflation  of  the  cur- 
rency, however,  much  of  this  gain  was  mere  paper  profits,  and 
did  not  represent  an  increase  in  real  wealth. 

In  addition  to  the  issues  by  the  Italian  banks,  the  Austrians 
distributed  in  the  occupied  districts  of  Italy  paper  money  printed 
by  their  cassaventa  to  an  amount  estimated  at  $60,000,000. 
There  were  also  considerable  sums  issued  directly  by  the  state  sn 
that  the  total  i>aper  money  in  circulation  was  swelled  to  an  enor- 
mous amount.  The  issues  of  bank  notes  and  of  the  state  notes 
are  shown  in  the  following  table,  and  the  proportion  of  bank 
issues  for  ordinary  commercial  needs  and  for  government  needs 
is  also  given : 


ITALY 


151 


State 

Issues 

Toul 

$99.82 

$552.86 

153.16 

924  J6 

227. 

1.090.16 

291.98 

1.455.12 

422.5 

2,436.7 

439.56 

.'.616.2 

NOTE  CIRCULATION  IN  ITALY.  1914  TO  1918 
(In  millions  of  dollars) 

Issues  of  the  Three  Banks  of  Issue 
For  Needs  cf  For  Needs  of 
Date  Commerce    Government         Total 

July   31,  1914         $453.04  $45304 

June  30.  1915  448.5  $322.7  77X2 

•[""'  ^'  i^!$  f  •■'^             ^ISZ  863.16 

une  30.  1917  504.2               658.94  1.163.14 

June  30.  1918  717.92  1.29628  20142 

Sept.  30.  1918  800.14  1,3765  2.'l76.« 

The  continued  inflation  of  the  currency  showed  itself  in  in- 
creased prices,  and  resulted  in  raising  materially  the  cost  of  the 
war  to  the  government.  An  estimate  based  on  the  prices  in  the 
city  market  of  Florence  showed  that  if  the  cost  of  living  in  Octo- 
ber. 1914.  were  taken  as  100,  by  the  end  of  1918  it  had  risen  to 
348.  As  some  of  these  prices  were  cwitrolled,  it  is  probable  that 
the  general  level  had  risen  to  an  even  greater  extent.  The  depre- 
ciation of  the  currency  was  shown  also  in  the  fall  of  foreign 
exchange.  The  gold  parity  of  the  lira  is  19.3  cents,  but  in  May, 
1918,  it  fell  as  low  as  10.9  cents  in  the  United  States.  After  this 
it  was  given  government  supp-  n  and  maintained  at  a  rate  not 
far  below  the  normal  level.  When  this  was  withdrawn  on 
March  19,  1919.  the  price  of  the  lira  suffered  a  disastrous  fall, 
reaching  12.5  cents  within  a  week. 

Expenditures,  1917 

The  struggle  to  expand  revenues  to  meet  the  civil  expenditure 
and  interest  on  growing  war  debt  has  been  shown.  The  utter 
inability  to  cover  by  means  of  taxation  any  port  of  war  expendi- 
ture is  apparent.  Therefore,  borrowing  and  war  expenditure 
had  to  balance.  By  May  and  June  of  this  year  the  monthly 
expenditures  reached  an  average  of  $300,000,000.  It  was  always 
a  problem  with  Italy  how  to  meet  the  crushing  financial  burden 
of  the  war.  liy  June  30,  1917,  war  expenditure  alone  had 
reached  $5,104,580,000,  and  the  actual  outlay  of  the  year  itself 
was  $2,826,440,000,  or  a  monthly  and  daily  mean  of  $235,536.- 
000  and  $7,85 1 .300  respectively.     While  Italy's  expenditure  was 


152 


DlkKlT  AND  IXDIKECT  COSTS  OF  THE  WAR 


|:    1 


absolutely  less  than  other  belligerents  her  relative  burden  was 
very  heavy,  if  not  indeed  crushing.  On  June  30.  1917,  the  na- 
tional debt  amounted  to  $6,040,090,710,  with  an  interest  charge 
of  $255,607,58'),  without  reckoning  the  floating  debt  of  some 
$')00,000,(X)0  in  notes  and  Treasury  bonds. 

Borrowings.  1917 

The  year's  exi>enditurf  $2,826,440,000  was  met  by  the  fol- 
lowing credit  operations.  The  net  issue  of  state  notes  during 
the  year  amounted  to  $64,980,000,  and  advances  from  banks 
amounted  to  $227,420,000,  or  a  total  of  $292,400,000. 

The  third  Italian  war  loan  was  opened  for  subscription  in 
January,  1917.  This  was  a  5  per  cent  unlimited  perpetual  loan 
bond  issued  at  90.  It  was  tax  free  and  inconvertible  before 
1931 .  The  yield  from  this  loan  was  reported  to  be  $722,000,000, 
of  which  $498,000,000  was  new  money,  while  the  rest  repre- 
sented conversions  of  former  issues,  short  term  obligations,  or 
exchanges  of  foreign  securities.  .V3  these  conversions  are  of 
interest,  they  w  arrant  a  detailed  statement.  Thev  were  as  follows : 


I  ■ 


Treasury  bills   $20300.000 

4  per  cent  5  year  bonds 85,400,000 

5  per  cent  3  and  5  year  bonds 79.200.000 

Foreign,  state  and  railway  securities 15.800,000 

Not  specified   '. 22,800,000 

$224,000,000 

Later  returns  of  foreign  and  field  subscriptions  to  the  new  loan 
made  a  total  of  $797,100,000.  Treasury  bonds  issued  during 
this  year  amounted  to  $282,320,000  and  exchequer  short  time 
bills  to  $687,880,000.  In  addition  to  these  forms  of  borrowing, 
British  and  American  Government  loans  to  a  total  of  $1,506,- 
320,000  were  received  by  Italy,  of  which  only  $100,000,000  had 
been  advanced  by  the  latter  down  to  June  30,  1917. 

The  creation  of  debt  necessitated  by  the  cost  of  war  during 
this  year  was  therefore  as  follows : 


ITALY  153 

BORROWINGS  OF  ITALY  DURING  YEAR,  1916-17 

Source  . 

-     .   .    , .  .         .  Amount 

Funded :  3d  war  loan,  January.  1917  (nominal) $797  looonn 

Floating :  State  note  issues,  net $64,980000     ■*'"''""'*~" 

Advances  from  banks '.     227!42d!oOO 

Treasury  tends  282320  000 

Exchequer  bills   687.'88o'o00 

Foreign  advances 1,506,320.000 

$2,768,920,000 

Taxation,  1917 

Italy  could  only  hope  to  expand  its  revenues  sufficiently  to  take 
care  of  the  civil  expenditures  and  the  inte-sst  on  the  growing  war 
debt.  As  was  seen,  equilibrium  between  the  two  had  not  been 
maintained  in  1916.  Accordingly,  further  taxes  were  imposed 
by  royal  decree  of  November  IS,  1916,  which  were  expected  to 
hnng  in  some  $40,000,000  annually.  Under  this  decree  a  large 
number  of  taxes  was  levied  which  affected  almost  every  com- 
modity and  business  transaction.  The  variety  and  detailed  char- 
acter of  the  scheme  was  characteristic.  In  Italy,  as  in  France, 
the  government  seemed  to  prefer  to  depend  on  a  large  number  of 
small  and  often  somewhat  trivial  taxes  rather  than  attack  boldly 
a  few  conspicuous  objects,  as  was  done  in  Great  Britain  and  the 
United  States.  The  most  important  of  the  multifarious  taxes 
imposed  by  the  new  measure  were  the  following. 

The  tax  on  war  profits  was  materially  increased  and  continued 
until  the  middle  of  1918.  The  rates' of  the  new  tax  may  be 
conveniently  stated  in  the  form  of  a  table : 

DC.        T           J  ^    .  .                                             ^'«  ot  Tax  Levied 

Profits  on  Invested  Capita'  Aug.  1. 1914.  to  Jan.  1, 1916,  to 

Between-PerCent  Dec  31, 1915  June  30. 1918 

8      to      10  12  20 

10     to      15  W  30 

JS      to     20  «  40 

Over         20  35  60 

In  addition,  the  income  tax  was  raised  to  16  per  cent  on  the  entire 
profits,  so  that  on  the  lowest  class  under  the  war  profits  tax  the 
total  taxation  would  amount  to  24  to  26  per  cent  of  the  income 
derived  from  war  profits.     In  like  manner  the  higher  groups  of 


154 


DIKKCr  AND  INDIRECT  COSTS  OF  THE  WAR 


i: 


it .. 


iiin.ii;t  iltrivctl  fri>m  war  profits  would  pay  total  taxes  equal  to 
the  combined  rates  of  the  income  tax  and  the  war  profits  tax. 

Not  otily  was  a  tax  on  war  profits  levied,  but  there  was  also  a 
limitation  under  the  decree  of  February  7,  1916,  which,  originally 
rather  indefinite,  was  now  made  even  more  so,  upon  the  distri- 
Inition  of  the  remaining  profits  to  shareholders.  These  were 
limited  to  8  per  cent  of  the  paid-up  capital  for  old  companies,  and 
lU  per  cent  for  the  new  ones  organized  since  the  war.  The 
announced  purpose  of  this  restriction  was  to  compel  the  com- 
panies to  build  up  adequate  reserves  against  the  postwar  disor- 
ganization. The  undivided  profits  were  also  placed  under  con- 
trol. One-third  must  be  compulsorily  invested  in  public  funds. 
The  other  two-thirds  were  left  to  the  discretion  of  the  directors 
to  Ije  invested  in  securities,  buildings,  stocks,  etc.  Ail  these  regu- 
lations were  to  cease  at  the  end  of  the  year  following  the  declara- 
tion of  peace. 

Another  tax  was  imposed  upon  men  who  ordinarily  would  lie 
on  active  service  in  the  army,  but  had  been  assigned  to  non- 
combatant  work  in  government  offices  or  permitted  provisionally 
to  stay  at  home,  ranging  from  one  to  three  centesimi  in  the  lira, 
to  l)e  deducted  monthly  and  paid  over  by  instalments.  The  tax 
began  on  earnings  of  $24  a  month  and  progressed  up  to  $48,  at 
which  point  the  highest  rate  was  charged. 

.\  stamp  duty  of  10  centesimi  per  lira  or  fraction  thereof,  of 
the  retail  price,  was  imposed  on  perfume,  cosmetics,  fancy  soaps 
an«l  similar  articles,  and  on  proprietary  medicines  except  aseptics 
or  antiseptics.  Stamp  duties  were  also  levied  on  endorsements 
of  bills  of  exchange  after  the  first  one  of  10  centesimi  for  every 
.^00  lira  of  the  amount,  and  on  certain  other  commercial  paper, 
and  also  on  demands  for  exemption  from  military  service  and  on 
the  actual  exemption  of  one  and  two  lira  respectively.  The  price 
'  if  various  classes  of  stamped  paper  for  c(witracts  and  other  legal 
rlocuments  was  also  decreed.  An  additional  war  tax  of  twie-thir- 
teenth  of  the  existing  impost  was  imposed  on  the  capital  of  limited 
liability  companies,  firms  or  partnerships,  including  insurance, 
tlthough  the  latter  were  in  a  moribund  condition  owing  to  the 


,;  t 


ITALY 


155 


government  monopoly  of  life  insurance.  A  revision  was  made  of 
taxes  on  government  concessions,  on  motorcycles,  motor  cars, 
motor  boats,  and  on  land.  A  special  war  tax  was  also  placed  on 
house  rent,  which  the  landlord  was  forbidden  to  pass  on  to  the 
tenant.  .\  monopoly  was  established  on  playing  cards,  and  finally, 
the  rates  were  raised  on  telegrams  and  on  certain  postal  services. 
These  impositions  yielded  very  little  during  the  fiscal  year 
1916-17,  although  their  return  for  the  next  full  year  was  con- 
siderable. The  total  revenue  receipts  for  the  year  were  $761.- 
000,000— an  increase  of  about  $160,000,000  in  the  total  over  the 
preceding  year,  with  an  increase  in  war  taxation  of  $169,997,000 
over  the  same  period.  Strict  economies  in  the  civil  expenditures 
of  this  year  resulted  in  a  saving  of  $34,000,000,  and  the  interest 
charges  on  the  war  debt  in  1917  reached  $255,607,589.  or  an  in- 
crease of  $101,600,000  over  1916.  This  fiscal  year,  therefore, 
for  the  first  time  saw  Italy  maintaining  equilibrium  between  civil 
expenditures  and  interest  charges,  on  the  one  hand,  and  revenue 
receipts  on  the  other,  with  a  slight  surplus  of  perhaps  $30,000,000 
to  devote  to  actual  direct  war  expenditure — even  then  averaging 
$300,000,000  a  month. 


EXPENDITUPES.    1918  TO   EnD 

Purely  war  expenditure  increased  from  $2,826,440,000  in  the 
fiscal  year  1916-17  to  $3,946,920,000,  and  the  total  war  expen- 
diture to  the  end  of  the  fiscal  ear  1918  therefore  amounted  to 
$9,051,500,000.  Expenditure  from  June  30,  1918,  to  October 
31,  1918,  together  with  adjustments  of  credits  and  debits,  the 
coming  in  of  liabilities  incurred  but  not  expended  in  earlier 
periods,  and  the  addition  of  interest  paid  on  war  debts  by  the 
Treasury  to  that  date,  made  war  expenditure  to  October  31.  1918, 
total  $12,523,800,000.  Expenditure  for  the  last  three  months 
of  war  had  reached  the  staggering  sum  of  $10,930,000  a  day. 
The  national  debt,  excluding  the  floating  indebtedness,  on  June 
30.  1918,  stood  at  $8,682,890,300.  with  an  interest  charge  of 
$382,022,327. 


156  UIKIXT   AXU  IXUIUKCT   COSTS  OF  THE   WAR 

Borrow  I NCis,  1918  to  Exd 

As  revenues  were  l>arely  sufficient  to  meet  civil  expenditures 
and  growing  interest  charges,  loans  continued  to  meet  war  ex- 
penditure. During  this  period,  advances  from  the  lanks 
amounted  to  $718,500,000,  and  state  notes  to  $147,580,000— the 
amount  in  circulation  on  September  30.  1918,  being  $2,176,640,- 
Oa)  and  $439,560,000  respectivelv.  or  a  total  circulation  of 
$2,616,200,000. 

The  fourth  Julian  war  loan  was  issued  in  January,  1918. 
This  was  a  5  per  cent  bond,  with  no  fixed  maturity,  but  not  sub- 
ject to  conversion  before  1932.  issued  at  86.5.  Provision  was 
made  for  the  conversion  of  a  large  number  of  former  bonds  or 
short  term  obligations  into  this  issue,  and  as  many  as  nine  dif- 
ferent kinds  of  securities  were  enumerated  which  would  be  ac- 
cepted in  payment.  As  a  result  of  these  conversion  provisions, 
the  subscriptions  amounted  to  almost  as  much  as  the  previous 
loatis  totaled,  or  81,224,600,000  nominal  net.  The  bonds  were 
issued  exempt  from  all  present  or  future  taxes.  In  addition 
to  this  loan.  Treasury'  bills  to  the  amount  of  $200,000,000  were 
issued,  which  were  placed  largely  in  England.  The  foreign  loans 
placed  by  Italy  up  to  the  end  of  the  war  may  be  stated  as  follows; 

^'■•""  Amount 

Great  Briuin,  to  .\pril,  1919 $2065000000 

Unit^  States,  to  April,  1919* ".;  l,S2l.SO0m 

Lee  Higginson  &  Co.,  Boston 25,000000 

The  loans  in  Great  Britain  were  placed  at  5.5  per  cent ;  the  Lee 
Higginson  &  Company  loan  was  floated  by  means  of  6  per  cent 
bonds  payable  in  dollars,  and  the  United  States  Government  ad- 
\ances  bore  var>-ing  rates  from  3  per  cent  on  the  first  $100,000,- 
000  to  5  per  cent  on  the  later  advances. 

The  debt  on  October  31.  1918.  after  the  conversions  of  the 
former  loans  and  short  time  obligations  into  the  new  1918  loan 
A\  as  made  up  as  follows : 

'  Thf  tin.il  arlvaiices  to  Italy  by  the  United  Stotes  were  $1,587,675,946. 


ITALY  157 

ITALY'S  DEBT.  OCTOBER  31,  1918 

^"'"*  Amount 

,.,     ,  Pr.**""'   $2,727^00.000 

War  loans,  mobilization.  1st.  2d,  3d  and  4th $2,947,400,000 

3  and  5  year  S  per  cent  Treasury  bonds '61o!40o!00U 

Exchequer  bills,  3  to  12  months 1348,000^000 

Foreign  advances  British  and  United  States '.  2,77o!200,000 

Advances  from  banks  by  issue  of  notes l!3O7.2(K)!00O 

Xotes  issued  by  state  direct 408.200^000 

Total  war  debt  to  October  31,  1918 $9,891.400000 

Grand  total  $12,618,600,000 

The  difference  between  expenditure  and  creation  of  debt, 
amounting  to  some  $2,500,000,000.  is  accounted  for  by  outstand- 
ing liabilities,  and  the  difference  between  the  nominal  and  the  net 
war  loans,  also  the  fluctuation  in  parity  of  exchange,  made  the 
net  and  nominal  amounts  vary  in  the  case  of  foreign  loans. 

Taxation.  1918  to  End 

During  this  year  the  great  bulk  of  the  new  impositicms  was 
effective  during  the  whole  period,  and  the  Treastiry  E)epartment 
reported  in  June  that  Italy's  financial  situation  was  excellent,  and 
the  returns  for  the  year  ending  June  30  bore  out  this  statement. ' 
The  tax  revenues  for  the  fiscal  year  were  $878,920,000.  or  $225,- 
000,000  over  the  estimated  total  receipts  of  1916-17.  The  chief 
source  of  revenue  was  the  income  tax,  which  really  represented 
a  complex  of  taxes.  Of  the  $292,460,000  obtained  from  this 
source,  $88,400,000  represented  the  war  profits  tax  which  was 
much  more  productive  than  had  been  estimated;  $54,620,000 
came  from  the  additional  "centesimi  de  guerre"  (war  farthing 
tax) ;  the  tax  on  business  transactions  amounted  to  $113,000,000, 
which  was  an  increase  of  $24,000,000  over  the  previous  year,  but 
a  large  part  of  this  came  from  war  contracts  and  could  therefore 
not  be  expected  to  continue.  The  newly  imposed  taxes  (Mi  mov- 
ing pictures,  jewelry,  perfumes,  etc.,  showed  only  very  meagre 
results,  quite  inccmimensurate  with  the  irritation  they  caused. 
Large  gains  were  made  in  customs  duties,  owing  in  part  to  the 
increased  importation  of  foodstuffs  and  mimitions  from  abroad. 

'  Revue  financiere  et  economique  ifltalie,  October  31,  1918. 


vt 


I 


••"'W  DtHF.fT   AND  IXIKKKCT   COSTS  |)K    :  IIK   WAK 

I  Ik-  ffivatost  ^ain  was  made  from  stale  m()tnTX)i;es  which  yielded 
a  total  of  $223,800,000.  the  largest  part  of  which  (some  $164.- 
umn) )  was  derived  from  tobacco.  Rut  a,s  a  large  part  of  this 
xvas  purchased  by  the  army,  the  profits  were  mere  bookkeeping 
Rains.  F:vcn  after  making  r>']  allowances,  however,  the  increase 
ill  revenues  was  impressive.  The  real  problem,  however,  was 
that  of  making  the  increases  permanent  rather  than  temporary, 
in  order  that  the  postbellum  burden  might  be  met.  The  follow- 
ing table  shows  the  receipts  of  Italy  for  the  fiscal  year  ending 
June  30.  1918,  under  the  principal  ruWcs : 

Source  V  ij 

Business  taxe.s naoMnnn 

Consumption  taxes loiS^'nm 

State  monopolies   •»!  J'lSI'nnft 

Direct  taxes  >6i'lS'SS 

Public  .service  enterprises '^'^'oon 

Rights  on  sales  of  state  sugar S'460'o00 

1878.920.000 

The  most  striking  and  significant  feature  of  Italian  finance  is 
not  the  aJjsolute  amounts  involved  but  the  increase  from  year  to 
>  ear.  Finance  Minister  Xitti  is  reported  to  have  said :  "Not 
a  debt  is  made  without  the  interest  being  assured  by  a  corre- 
sponding tax."  Certain  it  is  that  the  four  years  of  war  saw  a 
large  addition  to  the  already  heavy  burden  of  taxation  under 
which  the  Italian  people  were  staggering.  The  increases  in 
taxation  alone  during  the  war  period  are  as  follows : 

,Q, .     .  .\mount  Increase 

g  t^ $265,000,000 

\l\T„ 339.800,000  $74,80Oi0OO 

q{?:|« 481.600.000  142.600.000 

'^■'^  '" 6Ol.R2O,00ft  120.220,000 

Although  the  next  fiscal  year,  ending  June  30.  1919.  witnessed 
a  decrease  in  expenditures  owing  to  the  cessation  of  militar^• 
operations  in  November,  these  by  no  means  fell  to  the  prewar 
lev  cl.  Owing  to  the  interest  on  the  increased  debt,  the  expendi- 
tures  for  pensions,  relea.se.  etc..  it  was  necessary  for  the  state  to 


rTAi.v  1 59 

raise  even  larger  revenues  than  th(»e  of  the  previous  year,  if 
these  expenditures  were  to  Ije  met  out  of  revenues.  Accordingly, 
the  government  proposed  a  number  of  new  monopolies,  and 
various  modifications  were  to  be  made  in  the  existing  monopolies 
of  tobacco,  salt,  matches,  quinine,  playing  cards,  and  lotteries,  in 
order  to  make  them  more  productive.  Minister  of  Finance  Nitti 
also  decreed  that  the  sale  and  supply  of  the  following  articles 
should  be  state  monopolies :  coffee  and  paraffin,  mineral  oils,  and 
the  sale  at  home  and  abroad  of  quinine  and  secondary  products. 
These  were  very  unpopular,  but  on  account  of  their  productive- 
ness have  been  perse\'ered  in  by  the  government. 

A  supfdementary  income  tax  for  the  year  1919  only  was  im- 
|K>sed,  in  addition  to  the  already  existing  tax  on  incomes.  This 
was  levied  on  incomes  over  $2,000  a  year,  and  was  graduated 
from  1  per  cent  on  those  between  $2,000  and  $3,000  to  8  per  cent 
on  those  over  $15,000.  There  was  also  a  2  per  cent  additional 
tax  on  the  dividends  of  joint  stock  companies,  communes,  munic- 
ipalities, etc.,  which  had  issued  normal  bearer  shares.  In  ^ite 
of  all  these  new  sources  which  were  tapped,  Signor  Nitti,  in  fore- 
casting the  budget  for  1919-20,  was  forced  to  estimate  a  deficit 
of  $132,000,000  which  it  was  hoped  the  newly  decreed  monopolies 
woUiJ  cover.  The  estimated  budget  showed  receipts  of  $971,- 
000,000  and  expenditures  of  $1,103,000,000. 

Italy's  war  costs,  which  are  listed  apart  from  her  civil  expendi- 
tures, are  therefore  as  follows: 

Expenditures :  August  1,  1914,  to  June  30,  1915. .  $607340,000 

July  1,  191S.  to  June  30.  1916. . . .  1.670,300,000 

July  1,  1916.  to  June  30.  1917. . . .  23%440,000 

July  1,  1917,  to  June  30.  1918. . . .  3,946SmjOIOO 

July  1,  1918,  to  October  31.  1918. .  1.345.000.000 

Unpaid  liabilities  2.000,000,000 

Interest  on  war  debt  to  Oct.  31, 1918  724.000.000 

$13,120,500,000 
Increase  in  civil  budget 99,3£2.000 

Total   $13,121,138,000 

Less  military  expense  in  normal 
years,  for  war  period 707.140,000 

Net  cost  of  war $12,413,998,000  $12.41.1.998.000 


i'  ' 


.i 


Kaiwii  liy: 


DIMKt  r  AXD  IVniMKCT  COSTS  OK  TIIK   WAH 

Mokilitaiion  luaii iOOOUOOOO 

iM  war  loan  aflJOoioOO 

M  warkmn  797,100.000 

4th  war  l.«n  \J24j(m.000 

|a,05J.7O).ai0 

State  note  i»*ue«  339,740,000 

Bank  note  advancei  1.376.500.000 

Advances  from  England  to  April 

.^^"       •; .V-Vo 2.065,000.000 

Ad.ances  from  United  Sutei  to 

Apiil,    1919    1,521500000 

J  and  5  year  Treasury  bonds. . . .  650.000000 

3  and  12  month  Exchequer  bills.  1.950.000,000 

I  rivafe  banking  credit  in  U.  S.. .  25,000.000 

c  ,  $10,981,440,000 

r.xce«s   of    revenue   during    war 

period,  over  1914  normal 1.468.511.000 

'■ —  $12.449,951.00(> 


UNITED  STATES 

In  spite  of  its  late  entnuKe  into  the  war,  the  expenditures  of 
tht  United  States,  by  reason  of  their  magnitude,  at  once  rivalled 
those  of  the  leading  European  belligerents.  The  country  was 
well  prepared  to  take  a  leading  part  in  the  struggle.  As  a  result 
of  the  production  of  supplies  for  the  European  belligerents  dur- 
ing the  two  and  a  half  years  preceding,  the  industries  of  the 
country  were  in  a  measure  adjusted  to  the  herculean  task  now  to 
be  laid  upon  them.  The  finances  of  the  country  were  in  good 
condition.  The  installation  of  the  federal  reserve  system  had 
created  the  financial  machinery  necessary  to  handle  the  enormous 
luans  which  were  soon  to  be  floated.  The  tax  niachineiy,  too, 
had  been  organized  and  was  in  good  working  order,  for  the  in- 
ccmie  tax  was  by  now  running  smoothly,  and  together  with  the 
excise  taxes,  formed  the  foundation  of  an  rasily  expanded  and 
lucrative  revenue  system.  Indeed,  so  well  was  the  United  States 
financially  prepared  for  participation  in  the  war  that  it  will  not 
be  r  rprifing  rf  some  future  historian  shall  "discover"  that  these 
measures  were  1 11  part  of  a  gigantic  scheme  to  make  of  the  United 
States  the  foremost  militaristic  power  in  the  world. 

The  normal  peace  expenditure  of  the  United  States  tmder  its 
principal  classifications,  from  1913  to  1916,  are  given  in  the 
following  taUe: 

Eiteblithment                         1913  1914  1915  1916 

Civil   1170,829,673  $170330,235  $207,169324  $204,038,737 

Military  160J87,4S2  173322,804  172,973,091  164,635.576 

Naval  133,262,861  139,682,186  141,835,653  155,029,425 

Pension*,  interest,  etc..  218,290719  21(^519,264  208,125,023  200,799,260 

Total $682,77a70S    $700,254,489    $730,103391    $724,492,998 

Expenditures,  1916-17 

From  the  very  day  of  its  entrance  into  the  struggle  cm  April  6, 
1917,  the  expenditures  of  the  United  States  showed  a  startlingly 
rapid  growth.  From  an  average  monthly  expenditure  of  $65,- 
000,000  during  1916,  the  ordinary  expenditures  rose  from 
January  to  June,  1917,  as  shown  in  the  fdlowing  taUe: 


Ill 


N! 


l'»-  DIKIU  I    AM)   INDIKKIT  fOS TS  Ol"  THK   WAR 

1<>I7  Mc.mli  Monthly  Daily 

January    $;9,910,7N  !i!2.?77.76i 

Kil.ruary   75,844.4%  2,708.40t. 

March    72.773,WX1  2.347,545 

April    81.599,598  2,719,9». 

May    114,102,810  J,680.7J6 

.luiu-    134.304.04(»  4.776.801 

I  liese  cxixjiulitiircs  are  exclusive  of  advances  to  Allies. 

it  is  not  possil)lc  tu  1,'ivc  in  detail  the  classification  of  these  ex- 
IK'ndiiiires.  but  an  approximate  idea  may  lie  secured  from  a  sum- 
mary statement  for  the  fiscal  year  ending  June  30.  1917.  which 
covered  only  eighty-five  days  of  the  war  periotl,  however,  namely, 
from  April  6  to  June  30: 

KxiH'iuliture  1916-17 

t'ivil  II2J4.649J48 

Mili'ary    440,276,880 

N'aval    257,166.437 

lii'liaii    30.598.093 

l^-"si<'"N     160.318.405 

InUTi'st  im  public  ileitt 24.742.i29 

MiMrcllanrous    147.799 

Total   ordinary   dislmrsi-inents $1,147,898,991 

Purchase  of  ohliKations  of  foreign  govt^rnments  (advanco  to 
Allio )    885,()00,<)0(1 

Total $2,032,898,991 

In  endeavoring  to  estimate  the  expenditures  chargeable  to  war, 
no  serious  error  will  be  made  if  the  exi^enditures  for  1915-16  Ik? 
regarded  as  normal,  and  the  excess  l«etween  the  prewar  nonnal 
and  the  sul)se(|uent  war  abnormal  l)e  regarded  as  war  expenditure. 
Tbi><  would  give  war  cxi)enditure  for  the  period  from  .April  6  tti 
June  v^O,  1917,  as  $423.40.i.*»3,  to  which  must  I*  added  advances 
to  Allies  of  $«8.=^.(KH).00().  making  a  total  of  $1 .308,405.W3. 


l.«.ANs.   l')U,-i; 


3 


The  I'irst  l,ilH;rty  Loan  Act.  passed  April  24,  1917,  provided 
for  an  issue  of  IkhuIs  to  the  amoimt  of  $.S,0O0,0CX),O0O,  of  which 
$3,000,(XK\(KJ(;  was  to  l)e  used  to  purchase  the  obligations  of 
governments  at  war  with  Germany.  .\  |K>|>ular  loan  of  $2,000,- 
000.000  fifteen-thirty  year  gold  Ixmds  was  issued  by  the  United 


UNITED  STATES 


163 


States  in  May.  1917,  dated  June  15.  1917,  bearing  interest  at  the 
rate  of  ij/j  per  cent.  The  bonds  were  tax  exempt,  both  as  to 
principal  and  interest,  from  all  taxation  except  estate  and  inherit- 
ance taxes,  and  carried  conversion  privilege  into  future  issues 
which  might  \x  put  out  at  higher  rates  of  interest.  Pending  the 
flotation  of  the  loan,  the  Treasury  was  authorized  to  issue  one 
year  certificates  of  indebtedness.  The  use  of  such  certificates  to 
anticipate  the  yield  of  war  loans  and  taxes  has  characterized  the 
financing  of  the  war  in  the  United  States  from  the  Ijeginning. 
Provision  was  also  made  for  the  convertibility  into  this  issue  of 
the  outstanding  Panama  Canal  Ixmds.  of  which  $63,945,460  were 
later  actually  converte<l.  By  this  act,  as  by  subsequent  loan  acts, 
the  responsibility  for  the  success  of  the  bond  issue  w..s  imposed 
very  largely  upon  the  Secretary  of  the  Treasury.  He  was  given 
great  power  and  authority  under  the  act  and  may  fairly  lie  held 
re- ionsible  for  its  success  or  viilure. 

One  of  the  first  steps  taken  was  the  organization  of  the  machin- 
erj'  for  the  sale  and  distribution  of  the  loan.  For  this  |iurpose 
the  federal  reserve  lianks  formed  an  admirable  lase.  Under  the 
federal  reser\e  system  the  United  States  was  divided  into  twelve 
districts,  and  in  each  district  a  federal  reserve  bank  was  estab- 
lished in  a  selectetl  city  as  the  head  office  of  the  banks  in  that 
district.  .Ml  national  banks  in  each  of  the  twelve  districts  were 
refjuiretl  to  Income  members,  and  all  State  banks  and  trust  com- 
panies were  |>ennitted  to  do  so.  At  the  time  of  the  issue  of  the 
First  Liberty  l,(«n  there  were  7.581  national  banks  and  40  State 
banks  and  trust  companies  in  the  system.  Under  section  IS  of 
the  Federal  Reserve  Act,  it  was  provided  that  the  federal  resene 
banks  could  act  as  fiscal  agents  of  the  United  States  when  re- 
quired by  the  Secretary  of  the  Treasury,  and  an  order  providing 
for  this  had  already  been  issued.  .\  circular  of  May  14,  1917. 
designated  the  Treasury  Department  and  the  twelve  federal  re- 
serve banks  as  agents  to  receive  applications  for  the  First  Liberty 
Loan.  Each  of  the  twelve  banks  appointed  a  central  committee 
of  five  representati\e  business  men  to  act  as  a  central  Liberty 
Loan  committee  in  the  respective  districts,  and  they  in  turn  ap- 


i'i^ 


164 


DIRF.CT  AND  INDIRECT  COSTS  OF  THE  WAR 


'il 


I  , 


iwinted  subcommittees  in  each  of  the  larger  towns  and  cities. 
J!-xtensive  subscription  and  publicity  campaigns  were  inaugurated 
and  carried  through  by  these  committees,  which  acquired  th 
voluntary  cooperation  of  many  persons  in  the  prosecution  of  the 
work.  Special  women's  Liberty  Loan  committees  were  formed 
and  the  aid  of  the  Boy  Scouts  was  secured,  both  of  which  gave 
\  aluable  assistance.  The  American  Bankers'  Association  oflfered 
its  services.  The  vigorous  cooperation  of  the  press  was  secured, 
and  many  valuable  editorials  and  news  items  were  devoted  to  the 
promotion  of  Liberty  Loan  sales.  Experienced  bond  salesmen 
were  enlis.id  in  the  work  of  selling  Liberty  Bonds.  Arrange- 
ments were  made  by  banks  an<!  trust  companies  to  carry  on  a 
reasonable  margin  large  amounts  of  these  bonds  for  their  cus- 
tomers at  the  same  rate  of  interest  as  the  bonds.  The  same  gen- 
eral procedure  was  followed  in  the  subsequent  Liberty  Loan 
issues. 

It  is  evident  from  what  has  Ijeen  said  that  the  part  played  by 
the  federal  reser\e  banks  in  financing  the  war  was  of  prime  im- 
portance. In  their  capacity  as  fiscal  agents  of  the  government 
they  rendered  invaluable  service  in  securing  subscriptions  for  and 
distributing  the  loan,  but  their  contribution  did  not  end  with 
their  work  as  brokers,  for  they  practically  underwrote  the  bond 
issues  and  subscribed  to  large  amounts  themselves. 

The  results  of  the  loan  were  regarded  as  a  sort  of  earnest  of 
the  intentions  of  the  United  States  in  the  prosecution  of  the  war, 
and  every  effort  was  made  to  insure  its  success.  The  subscrip- 
tions amounted  tt)  ?r035,i26,8.'i0,  but  only  $2,000,000,000  was 
accejrted.  .Allotments  were  made  in  full  to  subscribers  in  amounts 
up  to  $10,000  and  over  that  sum  in  such  prc^rtions  ar  to  net 
the  exact  amount  asked  for.  The  number  of  subscribers  was 
aljout  4.500.000. 

The  credit  operations  of  the  Treasury  for  the  fiscal  year  1916- 
17  are  given  in  the  following  table: 


Receipts  into  Treasury  from  : 

First  Liberty  Loan   

Certificate  of   in<lelite(tness,  net. 


Amount 
.$1.466..W5.(m 
285.632.7.12 


united  states  163 

Taxation.  1916-17 

While  no  new  war  revenue  measure  was  enacted  in  the  period 
from  April  6,  1917,  to  the  end  of  the  fiscal  year.  June  30,  1917. 
the  yield  during  this  fiscal  year  was  greatly  increased  over  pre- 
war normal  revenue  by  the  enactments  of  September  8,  1916,  and 
March  3,  1917.  and  as  these  revenue  measures,  though  preceding 
actual  belligerency,  were  enacted  to  provide  a  "preparevlness 
fund"  and  carry  out  an  increased  naval  program,  and  were  di- 
verted to  or  merged  in  current  war  expenditure,  they  may  fairiy 
be  regarded,  at  least  in  the  excess  over  normal,  as  war  revenue. 
The  normal  revenues'  for  the  period  of  1913-1917  were  as 
follows : 

Sf^-  ^i» 

jt 697.910.827 

2! 779.664.S52 

gjj;;: ;; ;;::::;:::::;:::::::::::. : 1,118,174,125 

In  estimating  the  amount  of  revenue  which  went  to  meet  war 
expenditure,  the  receipts  of  1916  may  be  taken  as  normal,  and 
therefore  the  difference,  or  $338,509,574.  represents  the  amount 
of  war  expenditure  raised  in  the  fiscal  year  1916-17  which  was 
met  out  of  revenue. 

The  financial  operations  of  war.  for  the  eighty-five  day  period 
between  April  6  and  June  30.  1917.  may  therefore  be  stated  as 

follows : 

..^  11.3(18.405.993 

War  expenditure    ::;:.:....    |33g,S09.574 

War  revenue  1.751.967.826 

BorrowmRS    . 

$2,090,477,400 
EXPENDITrRES,  1917-18 

The  Treasury  Department  had  estimated  the  expenditures  for 
the  fiscal  year  1917-18  at  $18,775,910,995.  Congress  promptly 
followed  the  estimate  by  an  appropriation  of  $18,879,177,013. 
or  slightly  more  than  the  executive  estimates,  with  an  additional 

'  Kxpenditures  for  tlie-e  same  years  are  given  on  page  161. 


](t(t  UIMKn-   AND  INDIKECT  COSTS  OK  TIIK   W  \K 

appropriation  of  5;_',31 1.553,*)i5  for  contract  oblifratiims.  Tlie 
end  of  the  fiscal  year  showed  that  actual  ordinary  dishnrseinents 
anuiunted  to  only  S»^Hi(t.?i2,2(i(t  and  advances  to  Allies,  $4.73'<.- 
434,730.  or  a  total  of  .S13,7().'),'W)7,()h).  The  discrepancy  lie- 
tween  the  estimated  and  the  actual  disbursements  seems  to  have 
l)een  due  t(^  the  assumption  tliat  the  total  pr<Kluctive  capacity  of 
the  L'nited  States  for  war  materials  could  lie  used  at  once  and 
to  the  full  for  j^oveniment  i)urp<»ses.  Invents  of  the  year  jmncd 
this  assumption  to  Ik;  erroneous ;  in  fact,  a  full  year  was  to  ela|>se 
Itefore  the  necessarx  adjustments  were  effected  in  American  iu- 
•lustry  and  trade  whicli  made  it  in)ssil)le  to  direct  the  major  re- 
sources of  the  country  iiUo  war  channels.  The  daily  ex|»endi- 
tures,  exclusive  of  advances  to  Allies,  durinji  this  year,  were  as 
foI|{)ws : 

1917-18  Monthly  Dai!) 

July  *i()«JW.(Ul  $6,7iy..U.5 

AuKiist   277.4.W.()()0  S.949,61.? 

ScptcmlKT  .M9.()I.l.W.S  I l.J.17,7<>i< 

'  )ctc>l>cr    •«<)5,045,J«t  14,904.6«0 

VovrmluT   5I,J.9.Si.(U5  17.»W  -Vll 

DfcmlK-r    61 1,2V7,425  19.719.27.' 

January    715,J02.0J9  U.WA.M) 

February 67Sin9.068  24,114.610 

March    819.955..V)7  26,450,17J 

April  910.7.V.,758  .10.558,558 

May     1,068.203.026  .M.4S8.1M 

Jum-      Ii6.l914.905  42.1.1l»,497 

The  comparative  jjrowth  in  the  war  expemliture  for  this  year 
may  l»c  arrived  ai  hy  deductinjr  the  i)rewar  1^1.3-16  nonnal  from 
the  expenditures  of  this  year  as  jjiven  in  the  following  table: 

KxiK-mliturf  1917  ))■ 

Civil   $'.507..kj7.48l 

Military    5.684..M8.f>2.5 

Naval     l.J<i8.642.79.1 

Indian • 30.888.776 

Pensions   181.137.7.S4 

Intertst  on  pulilic  dHil 197..i26.6ll8 

Miscellaneous  arljiistment   ( <le<l«il  I    .?.,179.7f)'> 

Total  ordinarx   disbursements $8,966,532,266 

\dvani-es  to  Allies 4.7.39.4.H7.S0 

T..ta1    $13,705  .'*.7.nl(, 


INITF.U  STATr.S 


1(>T 


\  war  cxi)en«!itiire  for  the  year  is  thus  secured  "f  $8,242.- 
(KV^.2r)8.  or.  with  a»l\ance<  to  Mhes  ailded.  $  12.^^8 1.474.(1  IS. 
This  makes  the  total  for  the  war  peri<Kl  froin  April  r>,  1917.  to 
[une.U).  1918.  as  follows: 


Yemr 

1916-17. 
1917-18. 


W  ;ir  KxiKiulituri- 
i42.?.4()5,W.» 
H,i42,(t.W,i(i8 


Advances 
$8fi5.tlOI).000 
4.7.W.4.M.7.SO 


T.iial 
$I.J08,*)5.99.? 
12.981.474.018 

«14.2»9,8«0.(lll 


$8.66.S.445,261        $S,(V24.4,M.7.''fl 

Loans,   1'>17-18 

As  the  t:  \  lejjislatiim  t(»  provide  additional  rcvemie  was  not 
jwssed  until  •  ktolier.  l')17.  it  s<K>n  hecame  necessary  to  resort 
ayain  to  lH>rn>wing  in  order  to  meet  the  increa>ed  demands  occa- 
sioned by  the  war  and  also  the  ne€«ls  of   foreign  conntries  to 
which  the   Lnited   States   was  extending  credit,      .\ccordingly. 
the  Seonul  l.il»erty  Loan  .\ct  was  jiassed  on  Sei-teniljcr  24,  1917. 
This  authorized  the  Secretary  of  the  Treasury  to  issue  larnds.  in 
addition  to  the  $2.(XX),0CX).(XX)  already  issued  under  the  first  loan 
act.  to  the  annnmt  of  $7..S38.945.4f)().    This  sum  includetl  the  un- 
issued Ijalanccs  authorized  under  the  previous  .ict  ainl  a  new- 
authorization  for  $4,UU<UXX).l)(K).     The  rate  of  interest  was  fixed 
at  4  per  cent,  and  the  Iwnds  were  datetl  Xovemlier  \h.  1917.  and 
made  redeemable  in  1927  and  payable  in  1942.    They  were  ctm- 
vertible  into  the  next  issue  of  Ixjnds  bearinR  a  higher  interest 
rate,  the  conversion  privilege  to  cease  six  months  after  the  next 
issue  (.\oveml)er  9.  1918)  if  not  then  exercisetl.  and  the  Inrnds 
of  the  first  issue  convertetl  into  the  new  4s  had  only  coeval 
conversion  rights.    The  tax  exemption  privilege  of  the  first  issue 
lapsed  if  converted   (except   for  a  block  exemption  of  $5.(XX) 
princi|jal)  and  the  new  4s  were  made  subject  to  the  estate  and 
inheritance  taxes,  and  to  the  surtaxes  under  the  incoinfi  tax  law. 
as  well  as  to  excess  profits  and  war  profits  taxes.     The  with- 
drawal of  the  tax  exemption  feature  was  the  result  of  the  strong 
disapproval   directed   against   this   provisitm   in   the   first   issue, 
based  on   the  ground   that    tax  exemption   grained   a   privilege 
which  grew  in  \ alue  as  new  taxes  were  imposed  and  the  Inirden 
resting  uixni  acciuiuilatc«l  wealth  l>ecame  heavier. 


ir>8 


DIRKtT   AND  INDIKKCT   COSTS  OF  THE   WAK 


The  anunim  nt  the  second  loan  was  $3,000.0()0.(XK)  l>ut  the 
Secretary  ot  the  Treasury  announced  that  he  wmild  allot  addi- 
tional lx>nds  to  the  amount  <>f  half  the  oversuhscription.  The 
loan  was  offered  on  October  1  and  subscriptions  closed  on  October 
27,  when  it  was  announced  that  they  amounted  to  $4,617,- 
532,300  or  34  |>er  cent  more  than  the  amount  asked.  In  line 
with  the  announcement  of  the  Treasure,  Imnds  ultimately  al- 
lotted to  subscrilwrs  totaled  #3,808.7^)6.130.  Full  subscriptions 
were  accepted  fur  all  amounts  of  $50,000  and  under,  and  per- 
centages of  larger  amounts  ranging  from  'H)  per  cent  down  to  4(i 
|)er  cent.  The  total  numl)er  of  subscribers  was  *J,420,000 — 
more  than  double  the  number  in  the  First  Liberty  Loan. 

The  lowest  denomination  of  both  issues  had  been  placed  at 
S50.  But  in  order  that  sul)scriptions  might  be  obtained  from 
persons  of  small  means  who  would  not  lie  able  to  taken  even  a 
$30  bond,  war  savings  certificates  were  authorized  by  the  act  of 
Sqrtember  24.  1917.  to  an  amount  not  exceeding  $2,000,000,000. 
These  were  patterned  after  the  British  model  and  were  issued  in 
the  form  of  a  stam|)  costing  from  $4.12  to  $4.23,  according  to 
the  month  in  which  purcha.sed,  and  having  a  maturity  value  at 
the  end  of  five  years  of  $3.  Thrift  stamjw  costing  25  cents  each 
and  not  l)earing  interest  were  also  sold  which  were  exchangeable 
for  war  savings  certificates.  The  sale  of  the  stamps  and  certifi- 
cates was  made  the  occasion  for  a  cam|jaign  of  education  to  in- 
still principles  of  thrift  and  loyalty.  The  educational  work  thus 
done  may  l)e  regarded  as  probably  the  most  valuable  result, 
though  the  financial  return  from  these  statn|)s  was  by  no  means 
inconsiderable.  The  sale  was  begim  in  December,  and  by  the  end 
of  the  fiscal  year,  June  30.  1«>18,  the  revenue  from  this  source 
amounted  to  $307,092,3«>1 . 

The  Third  Liberty  Loan  .Act  provided  for  the  issue  of 
$3,000,000,000  4J4  i)er  cent  ten  year  imnds  maturing  in  1928. 
Bonds  were  dated  May  9,  1918.  and  offered  on  April  6,  1918, 
subscriptions  closing  May  4.  The  tax  exemption  provisions  were 
the  same  as  in  the  second  loan,  but  the  third  issue  differed  from 
the  previous  ones  in   >e\eral  respects.      In  the  first  place,  the 


UNITED  STATES  169 

optional  Ixmtl  was  rejected  in  favor  of  a  straight  ten  year  bond, 
which,  nu>rec)ver,  was  inconvertible.  Trior  issues  converted  into 
the  new  A'/in  also  became  inconvertible.  The  Secretary  of  the 
Treasury  announced  that  all  oversubscriptions  would  tie  accepted. 
Finally,  the  act  provided  for  a  bond  purchase  fund  out  of  which 
the  Secretary  of  the  Treasury  was  authorized,  until  one  year 
after  the  termination  of  the  war,  to  purchase  bonds  to  the  amount 
of  one-twentieth  of  the  outstanding  issues  in  each  year,  for  the 
purpose  of  sustaining  the  market  price  of  the  bonds.  By  October 
31,  bonds  to  the  amount  of  $244,036,500  had  been  purchased 
under  this  provision.  The  act  also  provided  for  the  issuance  of 
certificates  of  indebtedness  to  an  amount  not  exceeding  $8,000,- 
000,000  of  the  same  maturities  and  for  the  same  purposes  as 
under  the  previous  act.  The  sum  of  $5,500,000,000  was  also 
authorized  to  be  used  for  the  establishment  of  credits  for  foreign 
governments. 

The  subscriptions  to  this  loan  amounted  to  $4,176,516,850. 
This  represented  a  slight  falling  off  from  the  previous  loan,  but 
as  the  whole  amount  subscribed  was  accepted,  the  tinal  return 
to  the  Treasury  under  the  third  loan  was  greater  than  that  of 
the  second.  The  number  of  subscribers,  on  the  other  hand, 
almost  doubled,  increasing  to  18,376,815.  This  was  about  one 
subscriber  in  every  six  persons  in  the  United  States,  or  prac- 
tically one  to  the  normal  family.  This  was  the  widest  distribu- 
tion of  any  government  loan  in  any  lielligerent  country  up  to 
this  time. 

The  credit  operations  of  the  jear  may  be  summarized  as 

follows : 

Treasury  Kcceiptt  from  Amount 

First  Liberty  Loan,  balance,  net $522,456,200 

Second  Liberty  Loan,  less  conversions 3,746,813,516 

Third  Liberty  Loan,  less  conversions 3,228,109,639 

War  Savings  Sumps,  less  rtdemptioiis 349,797.298 

Certificates  of  indebtedness,  net 1.439,376,768 

Total  $9,286,553,421 

l.e««   miscellaneous   redomption* 18,513,287 

$9,268,040,134 


I 


170 


DIKKIT   AM)  INDIHKCT  IDS  IS  OK  TIIK   WAR 


i    I 
14    ! 


T\\\Tio\.  1^17-18 

On  (VitJitT  .^  1">17.  was  passed  the  first  war  revenue  act, 
which  was  estimated  to  raise  S.V-RXUWO.tXH).  It  inchuled  a 
drastic  addition  to  the  existing  surtaxes  im  income,  and  added 
an  excess  profits  tax.  Additions  were  also  made  in  the  system 
of  indirect  taxes.  The  old  excess  protits  tax  wliich  had  l)een 
provided  tor  under  the  act  of  March  3,  VH7,  and  which  had 
not  yet  jjone  into  effect  save  for  an  insij^nitkant  return  of 
$2,IX)0  otid,  was  re|)ealed.  Similarly  the  munition  manufac- 
turers' tax  was  lowered  to  10  i»er  cent  and  was  made  to  cease 
entirely  on  January  1.  1*>16. 

The  l«ckl)one  of  the  new  act  consisted  of  the  income  and 
excess  profits  [>ro\  isions.  In  the  former  the  exemption  minimum 
was  lowered  to  .Sl.(KX)  for  a  single  jwrson  an«l  $2,000  for  mar- 
rie«l  |»ersons  and  a  normal  tax  of  2  per  cent  was  levied  on  all 
incomes  in  excess  of  these  sums.  This  was  in  addition  to  the 
tax  of  2  j)er  cent  on  incomes  in  excess  of  $3,00t)  for  single 
IKTsons  and  $4.(HK)  for  njarried  jiersons  which  had  Ijeen  estab- 
lished hy  the  .ict  of  October  .?,  1*>13.  as  amended  by  subsetjuent 
acts  of  Sei>teml»er  H.  19U),  and  March  3,  1917.  .\  scale  uf 
additional  surtaxes  was  also  prescrilwil  in  addition  U>  those  ini- 
|N>sed  by  the  act  of  Septemlier  [<,  1"U),  on  mconies  of  individuals, 
which  rangetl  from  1  [>cr  cent  on  incomes  from  $3,000  to  $7,500, 
up  to  50  jjer  cent  on  incomes  over  .$1,0(X).01X).  Tbi;  highest 
combine<l  rate  which  was  levied  under  this  act  rtached  67  per 
cent  in  the  case  i-f  incomes  over  $2,0(X),001).  Kor  corpurations 
a  normal  tax  of  4  i)er  cent  was  prescril)e<l  in  addition  to  the 
existing  normal  rate  of  2  |)er  cent  on  net  income. 

The  excess  prortts  tax  was  supi>lementary  to  the  income  tax, 
and  provided  for  an  excess  j)rotits  tax  uix>n  the  income  ()f  indi- 
viduals, partnerships,  and  cnrjMH-ations.  .\  specific  exemption  of 
$3,000  in  the  t  ase  of  cor]x>rations,  and  $<).000  in  the  case  of 
partnershii)s  and  individuals,  was  allowed  and  .".Iso  the  deduction 
of  an  aiu<Hmt  oi  net  income  c(|ual  to  7  to  •)  per  cent  of  the  in- 
\cste<l  ca)>ital  used   in  the  Imsincss  dunn;,'  the  prewar  jjeriotl. 


IMTKI)  STATKS 


171 


The  years  1911.  1«)12,  and  1^13  were  defined  as  the  "prewar" 
{jcriod.  In  case  the  business  was  not  in  existence  during  that 
time,  the  deductible  inc«>me  was  tixetl  at  8  uer  cent.  BeginninR 
at  this  point  a  (p-aduated  tax  was  |>laced  uixm  the  profits  in  ex- 
cess of  the  amounts  exempte<l.  The  lowest  rate  was  20  per  cent 
on  excess  pn>fits  up  to  15  per  cent;  25  jier  cent  on  the  excess 
from  15  ti)  20  \xr  cent ;  35  per  cent  on  the  excess  from  2')  to  25 
l»er  cent;  45  \xr  cent  on  the  excess  from  25  to  33  per  cent :  and 
(A)  jier  cent  on  the  excess  profits  over  33  jier  cent. 

In  the  case  of  excess  proiits  derived  chiefly  from  iwrsonal  or 
professional  ser\ices.  the  rate  was  a  flat  one  of  8 per  cent  on  the 
net  income  in  excess  of  the  exemiHion  of  $3,000  for  corporations 
and  $6,000  for  jKirtnerships  and  individuals. 

Doirfrt  as  to  the  meaning  of  the  law  and  at>|>rehension  as  to 
the  effect  ui)on  the  industry  of  the  country  which  an  unwise  inter- 
pretation or  enforcement  might  entail,  led  the  Secretarj-  of  the 
Treasury  to  organize  a  group  of  business  and  professional  men 
designated  as  "excess  profits  tax  advisers."  They  were  able 
after  some  months  of  effort  to  issue  regulations  interpreting  the 
principal  features  of  the  excess  i>rofits  tax  provisions  and  estab- 
lishing the  administrative  procedure  with  reference  thereto.  In 
spite  of  this  effort  to  give  a  working  interpretation  to  a  clumsily 
drawn  law.  it  met  with  serious  and  continued  criticism. 

.\lx)ut  three-fourths  of  the  internal  revenue  receipts  levied 
under  this  act  were  secured  from  the  sources  just  described,  but 
in  addition  a  number  of  other  taxes  were  provided  for.  Next  in 
imp<jrtance  to  the  income  and  excess  profits  taxes  was  the  war 
tax  on  distilled  spirits,  which  was  raised  from  $2.20  to  $3.20; 
and  that  «>n  beer,  which  was  raised  from  $1.50  to  $3  per  bar- 
rel. Other  lieverages  were  taxed  at  more  moderate  rates.  The 
taxes  on  tol)acco  were  more  carefully  classified  and  considerably 
raised.  War  stamp  taxes  were  imposed  upon  certain  legal  or 
business  ilocuments.  playing  cards,  parcel  post  packages,  trans- 
fers of  shares  of  stcKk.  and  sales  of  produce  for  future  delivery. 
.\d'litions  were  made  to  a  large  number  of  existing  taxes  such 
as  the  "war  tax  on   facilities  furnished  by  public  utilities  and 


If 


:  fl 


\\l^' 


\7J  IMKKIT   .\NI»  INIHHKCT  COSTH  OK  TIIK   WAH 

insiirain'f"  New  taxes  were  imposed  known  as  "war  excise 
taxes"  on  automobiles,  musical  instruments,  jewelry,  sporting 
-j<xm|s,  i-ameras.  cosmetics,  toilet  articles  and  jiatent  medicines. 
movinjT  picture  films,  motor  boats  and  yachts.  The  tax  on  ad- 
missions and  dues  was  also  introduced  for  the  first  time.  An 
additional  war  tax  on  estates  graduated  from  one-half  of  1  per 
cent  on  estates  below  $50,000  to  10  per  cent  on  estates  over 
$10,000,000  was  added  to  the  already  existing  inheritance  tax. 
This  resulteil  in  raising  the  total  rates  on  inheritance  to  a  scale 
},Taduated  from  2  per  cent  to  25  per  cent.  Finally,  the  postol  rates 
were  increased  50  per  cent  in  the  case  of  first  class  nuil  and  a 
zone  system  at  increased  rates  was  introduced  in  the  ca«e  of 
second  class  mail. 

The  following  table  shows  the  receipts  under  this  law  for  the 
year  ending  June  .^0.  |0|8.  together  with  those  for  1917  and 
1914  for  purposes  of  compari.son: 

UNITED  STATES  TAX  RECEIPTS 

(In  millions  of  dollars) 

Source  I9ig  1917  1914 

Distilled  spirits   J17.5  ijg j  159 , 

Fermented    iiquor!>    126.3  91 9  47 1 

X?h«co  1S6.2  loa'^  y99 

Oleomargarine  2.3  19  13 

Special  taxes   27J  157 

Miscellanei 'US  and  war  excise 22S.9  44.8  1.1 

Total  recrii'ts  from  above 855.6  449.7  .108.6 

Income  and  ixccss  profits  taxes 2338.9         •3S9!7  7l!4 

Total  3.«>4.6  809.4  380.0 

The  financial  operations  on  account  of  war  for  the  fiscal  year 
1917-18  were  therefore  as  follows: 

War  expenditure  $12,981,474,018 

War  revenue $3,020,965,946 

w^rrowmR 9.268.010,134 

$12,288,976,080 

F'!XPKNDITI-RES.    1918-19 

The  Treasury  Department  had  estimated  the  expenditures  for 
the  fiscal  year   1018-10  at  $20,687,038,691   onlinarv,  and  ad- 


usu 


irNlTEO  STATKS  175 

vances  to  Allies  at  $4,475,565,250.  or  a  total  of  $25,000,000,000. 
on  the  assumption  that  the  vvar  would  continue  tluriii^  the  whole 
year.  The  ex|i«nditures  for  the  first  nine  n»onths  of  the  year  ( to 
March  31.  1919)  totaled  $15,164,224,227.  thaw  'or  December 
exceeding  $2,000,000,000.  including  advances  to  Allies.  The 
monthly  expenditures,  exclusive  of  advances  to  Allies,  arc  given 
for  this  year  in  the  following  table : 

1918-19                                                                      Monthly  Dtily 

July  $1,259,782,599  $40,638,310 

Augu»t 1.524.901.777  49.190J80 

September    1.624.583.411  54.152.780 

October    1.174,622.406  37J92.335 

November    1.655.051.004  55.168.366 

December    1,670.»»J96  53399.690 

jMuar/ 1/159.580.520  53.534^55 

Febrmn-    1.035.130.805  36.968.958 

March       ..                1.057.461.791  34.111.671 

Apr" 1.019^19^  33.977.^3 

M,,                        9\7.4Z5fi\S  29.594.697 

June." 754.639.949  25.154.665 

War  exijenditure  for  this  year,  arrived  at  by  deducting  the 
prewar  1915-16  normal,  would  give  the  sum  of  $14,311,131,692, 
and  adding  advances  to  Allies  during  the  year  amounting  to 
$3,479,255,265,  gives  a  total  of  $1 7,790,386.957. 

'^he  armistice  was  declared  on  November  11,  1918,  but  this 
did  not  at  once  diminish  expenditure,  but  rather  increased  it  as 
shown  in  the  above  table,  due  to  the  heavy  costs  involved  in  the 
cancelation  of  war  contracts,  the  expenses  of  transporting  troops 
from  France,  and  other  charges  incident  to  demobilization.  In 
January,  however,  a  gradual  decline  set  in  which  continued 
steadily  to  the  end  of  the  fiscal  year. 

•  Loans,  1918-19 

The  estimated  expenditure  of  $25,000,000,000,  with  esti- 
mated revenues  of  $8,000,000,000  left  a  deficit  of  $17,000,000 
to  be  met  by  loans,  had  the  war  continued.  Accordingly,  in  July 
an  act  was  passed  authorizing  an  issuance  of  $8,000,000,000  ad- 
ditional bonds,  and  providing  for  a  further  advance  of  $1,500,- 
000,000  to  Allies.     Treasury  certificates  in  anticipation  of  the 


MICROCOPY   RfSOlUTION   TBT   CHART 

'ANSI  and  ISO  TEST  CHART  No    2i 


^     ^IPPLIED  IIVHGE 


'653  tost   Main    Sfrrt 
Roch.si,,      ^„    y„,^  ,^g 

("6)   482  -  0300  -  Phont 
("6)   288  -  5989  -  Fo> 


174 


DIKKCT    WD   INDIKKCT   COSTS  (»!■    TlIK    WAk 


K:,l 


fourth  loan  ln'tjan  at  once  to  he  sokl.  I'y  Aiijjust  the  anioiinl 
(iiitstandinjj;  was  SJ.1S.\833,(X)(>.  The  sale  coiuimied  until  they 
reached  $4/)5'),S20,(  f"  on  Octolicr  1.  1918.  when  the  j-ourth 
I.il)ert\  I^jan  was  offered,  which  took  theni  up. 

The  sale  of  war  savin<.'s  certificates  had  thrown  steadily  since 
its  inaufiuration  in  l)eceml)er,  1917.  amounting,  as  hefore  stated, 
to  S.H)7.W2.3')1  durinj,'  the  i>rior  fiscal  year.  In  fuly.  1918.  the 
demand  liecame  so  great  that  for  a  time  the  Bureau  of  Engraving 
and  Printing  had  to  cease  the  work  on  iK)stage  stamps  in  order  to 
supply  enough  war  savings  and  thrift  stamps  to  meet  the  de- 
mand. It  was  estimated  alx>ut  the  middle  of  July  that  the  nuni- 
her  of  persons  who  had  invested  or  were  "i)ledged"  to  invest  in 
war  savings  stamps  was  34,410,000.  For  the  month  of  July  the 
total  sales  amounted  to  $211,417,943.  This  was  the  highwater 
mark,  however,  and  during  the  next  months  the  sales  fell  off. 
In  September.  1918,  Congress  extended  the  prior  limitation  of 
$2,aX\(KXX000  to  $4.000,0ai.000  and  the  Secretary  of  the  Treas- 
ury prepared  a  new  1919  series  to  go  on  sale  January  1,  1919, 
with  a  maturity  in  1924.  Curiously  enough,  in  spite  of  sul>- 
scri])tions  to  this  form  of  ir. vestment,  and  the  purchase  of  Liljerty 
IJonds,  the  savings  ])anks  of  the  country  reported  increased  de- 
posits. The  same  was  true  of  the  jxistal  savings  banks.  In  order 
to  meet  this  latter  growth,  the  maximum  amount  of  money 
which  a  depositor  might  have  on  de|>osit  was  raised  on  T»lv  22 
to  .S2..^0().  This  t>riginally  had  been  $500,  and  in  May,  1917. 
had  l)een  increased  to  $1,0(X). 

The  bourth  Lil)erty  Loan  in  the  amount  of  $6,000.0(X).000 
4y4  per  cent  li  f teen-thirty  year  gold  bonds  dated  October  24. 
1918.  was  offered  for  subscription  on  Septen^ber  28.  1918. 
The  right  to  allot  bonds  up  to  the  full  amount  of  the  oversub- 
scriptions was  reserved,  as  in  the  thirfl  loan.  The  tax  exemption 
provisions  were  the  same  as  in  the  second  and  third  loans,  but  in 
addition  there  was  an  exemption  from  surtaxes  and  excess 
1  rotits  and  war  profits  taxes  allowed  on  the  income  of  bonds  up 
to  i^30,000  principal,  and  a  further  exemption  from  these  taxes 
on  the  income  derived  from  an  aggregate  of  $4.\000  principal 


I  XITEl)  STATKS 


175 


of  tlie  three  prior  loans.  This  latter  exemption.  h(nve\er.  was 
contingent  ujx)n  the  taxpaver  who  claimed  it  l)eing  an  original 
subscriljer  to  the  l-'oiirth  Lil^erty  Loan  of  an  amount  of  one  and 
one-half  times  the  amount  of  the  three  prior  loans  ov  tied  l)y  him 
on  the  date  of  his  tax  return.  The  two  latter  block  tax  exemp- 
tions were  for  a  period  ending  two  years  after  the  war  only. 
This  exemi)tion  privilege  was  double  barreled,  having  the  effect 
almost  of  compulsion  in  .securing  additional  subscriptions  to  the 
fourth  loan  from  holders  of  prior  ones  who  could  thereby  secure 
additional  tax  exemptions  for  their  holdings,  and  at  the  same 
time  it  induced  subscribers  to  the  new  loan  to  purchase  on  the 
market  a  sufficient  amount  of  prior  loans  in  case  they  did  not 
then  own  them,  to  get  the  full  benefit  of  the  additional  exemi)- 
tion.  In  this  way  there  was  secured  the  effect  desired  by  the 
Treasury  of  maintaining  the  prices  of  the  earlier  issues,  and  of 
securing  subscriptions  to  the  fourth  loan. 

The  subscriptions  to  the  fourth  loan  amounted  to  $6,989,- 
047.000  and,  according  to  the  announcement,  the  Treasury  ac- 
cepted the  whole  amount.  This  was  an  oversubscription  of 
16.48  per  cent  which,  although  not  so  large  a  relative  oversub- 
scription as  had  obtained  in  any  of  the  other  three  loans,  repre- 
.sented  a  total  aliout  60  per  cent  higiier  than  the  largest  previous 
loan.  The  numljer  of  subscribers  grew  to  21,000,000.  or  almost 
one  in  every  five  of  the  poi>ulation. 

The  prfHreeds  of  this  loan  retired  the  outstanding  certificates 
of  indebtedness,  and  left  a  balance  which  lasted  up  to  the  end 
of  Xovember.  .\t  that  time  the  sale  of  certificates  was  resumed, 
and  by  March  13.  1919.  there  were  $4,920,256,300  outstanding. 
The  first  payment  of  the  income  tax  was  made  on  Match  15, 
and  permitted  the  retirement  of  alx)ut  $1,000,000,000,  but  it  was 
necessary  to  provide  further  funds  to  take  care  of  the  remainder, 
as  well  as  to  finance  further  activities  of  the  government.  Ac- 
cordingly, on  March  3,  1919,  the  fifth  loan  was  authorized.  As 
the  legislation  authorizing  it  was  passed  so  long  in  advance  of  its 
issue,  great  latitude  was  granted  to  the  Secretary  of  the  Treas- 
ur}-  in  fixing  the  details,  even  more  so  than  in  the  case  of  the 


M 


i 


r^ 


176 


DIKFXT   AND  INDIRECT  COSTS  OF  THE  WAR 


•  ;  I 


t-r 


\:'ii  :.! 


1  r.'- 


u.  ,1 


r 


previous  loans.     The  act  practically  determined  only  the  limit, 
which  was  set  at  $7,000,000,000. 

The  Victory  Liberty  Loan,  as  it  was  called,  was  oflfered  for 
popular  subscription  on  April  21,  1919,  and  consisted  of  $4,500,- 
000,000  4-H  per  cent  three-four  year  convertible  gold  notes. 
The  tax-exemption  provisions  were  similar  to  those  of  the  pre- 
vious acts,  but  the  notes  were  made  convertible  at  the  option  of 
the  holder  into  wholly  tax-exempt  (save  for  estate  and  inherit- 
ance taxes)  3^  per  cent  notes.  In  addition  to  the  exemptions 
specified  in  the  last  three  bond  acts,  an  exemption  was  allowed 
in  the  interest  on  notes  to  a  principal  amount  of  $20,000.  pro- 
vided no  noteholder  should  be  entitled  to  this  exemption  unless 
he  owned  one-third  of  the  amount  in  Victory  Loan  notes 
as  an  original  subscriber.  The  Treasury  announced  that  no 
oversubscription  would  be  accepted.  Other  provisions  of  the 
act  revived  the  privilege  of  conversion  of  the  Liberty  4s  into 
414  s,  which  privilege  had  expired  November  9,  1918.  A  cumu- 
lative sinking  fund  to  an  amount  annually  of  Zyi  per  cent  of  the 
aggregate  of  Liberty  Bonds  outstanding  July  1,  1920  (less  the 
amount  of  obligations  of  foreign  governments  held  by  the  United 
States)  was  authorized,  which  it  was  calculated  would  expunge 
the  net  debt  in  twenty-five  years.  Authorization  was  also  given 
for  making  further  loans  to  foreign  governments  for  a  period  of 
eighteen  months  after  the  termination  of  war,  and  for  convert- 
ing the  short  time  obligations  of  foreign  govemmentb  evidencing 
such  loans  into  long  time  obligations  maturing  not  later  than 
1938.  Finally,  the  War  Finance  Corporation  was  authorized,  in 
order  to  promote  commerce  with  foreign  nations,  to  grant  credits 
to  American  exporters  to  a  total  amount  of  $1,000,000,000. 

The  subscriptions  to  the  Victory  Liberty  Loan  totaled  $5,249,- 
908,300— an  oversubscription  of  nearly  $750,000,000,  or  16.66 
per  cent.  The  number  of  subscribers  was  about  12,000,000. 
Sixty  per  cent  of  the  total  was  in  amounts  of  less  than  $10,000, 
which,  under  the  allotment,  were  paid  in  full,  and  the  balance 
prorated  among  the  subscribers  for  larger  amounts. 


!!i 


r. SITED  STATKS 


177 


ii 


The  credit  operations  of  the  Treasur\'  for  the  fiscal  year 
1918-19  are  given  in  the  following  table: 

CREDIT  OPERATIONS.  UNITED  STATES.  1918-19 

Fourth  Liberty  Loan 6.794,504,557 

Vicfor>  Liberty  Loan 3,467,840,9SJ 

Certificates    of    indebtedness    (net) 3.273,000  000 

Total $1 1, 535.34  J.3 14 

Taxation,  1918-19 

The  announced  policy  of  the  administration  anil  of  Congress 
had  been  the  raising  of  a  quarter  to  a  third  of  the  expenditures 
by  taxation.  At  the  rate  expenditures  were  increasing,  it  was 
evident  that  new  revenue  would  have  to  lie  provided,  and  accord- 
ingly a  new  revenue  bill  was  introduced  in  the  summer  of  1918. 
It  was  designed  to  yield  about  $8,000,000,000.  which  would  be 
one-third  of  the  $24,000,000,000  that  it  was  estimated  the 
Treasury  would  need  for  the  fiscal  year  1919.  A  tax  measure 
calculated  to  yield  this  amount  was  finally  matured  at  the  time 
the  armistice  was  declared  after  long  continued  debate  and  the 
harmonizing  of  serious  diflferences  between  the  House  and  the 
Senate.  Immediately  upon  this  event  the  Secretary  of  the  Treas- 
ury suggested  to  Congress  the  desirability  of  reducing  the  amount 
of  revenue  to  be  raised  by  taxation  from  $8,000,000,000  to 
$6,000,000,000  for  the  fiscal  year  1918-19,  and  to  $4,000,000,000 
for  the  following  year.  This  advice  was  acted  upon  and  the  ex- 
isting bill  was  amended  so  as  to  reduce  the  revenue  to  the  sums 
suggested.    The  final  act  was  passed  February  24,  1919. 

As  in  the  1917  act,  the  backbone  of  this  measure  was  the  in- 
come and  war  profits  taxes.  The  exemptions  remained  the 
same  as  in  the  1917  act,  being  fixed  at  $1,000  for  single  persons 
and  $2,000  for  married  persons.  The  normal  tax  on  all  incomes 
above  these  sums  was  placed  at  12  per  cent  for  the  year  1918  and 
for  subsequent  years  at  8  per  cent — rates  which  represented  a 
trebling  and  doubling  respectively  of  the  existing  normal  tax. 


■  4 

'  r. 

■  k- 
■I 


178 


DTKKCT  AND  INDIRFXT  COSTS  OF  THE  WAR 


m 


The  surtaxes  w  ere  much  more  finely  graded  and  considerably  ni- 
crcased.  l)e,t,MnninK  with  1  per  cent  on  incomes  between  $5,000 
and  $6,000,  and  running  up  to  65  per  cent  on  incomes  over 
$1,000,000.  Incomes  of  the  latter  amount  would  therefore  bear 
a  total  tax  of  77  per  cent— a  figitre  which  exceeded  that  of  an> 
other  income  tax  in  the  world. 

The  1919  act  greatly  changed  and  distinctly  improved  the  ex- 
cess profits  tax.  In  this  enactment  it  is  styled  "war  profits  and 
excess  profits"  tax.  and  a  distinction  between  war  profits  and 
excess  profits  is  established.  Individuals  and  partnerships  were 
relieved  from  the  excess  profits  tax,  and  the  act  also  permits  de- 
duction of  losses  in  transactions  not  directly  connected  with  trade 
or  business,  and  removes  the  limitation  upon  the  deduction  of 
interest  upon  indebtedness.  As  in  the  former  act,  invested  cap- 
ital forms  the  basis  of  all  computation.  More  careful  definitions 
are  given  of  such  terms  as  "net  income,"  "invested  capital," 
"tangible  and  intangible  property,"  "inadmissible  assets,"  and 
special  provision  is  made  for  exceptional  cases,  for  reorganiza- 
tions, and  for  difficulties  in  interpreting  the  law.  After  invested 
capital  is  detemiined,  net  income  must  be  calculated  according  to 

prescribed  rules. 

Excess  profits  and  war  profits  are  differentiated  and  subjected 
to  slightly  different  treatment.  In  the  former  a  deduction  of 
$3,000  and  8  per  cent  of  the  net  income  on  invested  capital  is 
allowed  to  the  taxi>ayer  before  division  with  the  government.  In 
the  latter,  a  deduction  of  $3,000  is  allowed,  and  in  addition,  an 
amount  equal  to  10  per  cent  of  net  income  on  invested  capital,  or. 
average  prewar  net  income  on  invested  capital  and  10  ijer  cent 
i)n  anv  additional  invested  capital  used  in  the  taxable  year.  Fine 
distinctions  r.re  drawn  in  the  matter  of  differentiating  between 
prewar  net  income  and  taxable-year  net  income  for  corporations 
coming  into  being  since  prewar  days,  but  broadly  speaking,  the 
legislative  intent  is  to  declare  normal  profits  due  to  the  taxpayer 
to  be  $3,000  and  8  [ter  cent  of  the  income  on  his  investment,  and 
in  war  industr}'  $3,000  and  iO  per  cent  on  his  investment— the 


m 


UNITED  STATES 


179 


excess  over  these  deductions  being  subject  to  division  with  the 
government  in  the  following  percentages : 

(a)  30  per  cent  between  exemption  and  20  per  cent  on  in- 

vested capital; 

(b)  65  per  cent  over  20  per  cent  on  invested  capital; 

(c)  80  per  cent  of  the  excess  net  income  above  the  exemp- 

tion, less  the  sums  paid  as  taxes  under  (a)  and  (b). 
This  rate  applies  for  the  calendar  year  1918,  but  for  1919  and 
thereafter  the  above  30  per  cent  rate  is  reduced  to  20  per  cent, 
and  the  65  per  cent  rate  is  reduced  to  40  per  cent.  Profits  on 
United  States  war  contracts  are  subject  to  special  taxation  com- 
putation. The  severity  of  these  rates,  however,  is  modified  by 
a  provision  fixing  the  maximum  ratio  of  the  tax  'to  net  inccwne. 
It  is  provided  that  the  tax  imposed  shall  in  no  case  be  more 
than  30  per  cent  of  the  amount  of  the  net  income  between  $3,000 
and  $20,000,  plus  80  per  cent  of  the  net  income  in  excess  of 
$20,000. 

The  estate  tax  was  considerably  revised.  In  the  first  place, 
a  somewhat  finer  graduation  was  introduced  in  the  classes  be- 
tween $450,000  and  $2,000,000;  in  the  second  place,  the  smaller 
estates  from  $50,000  up  to  $2,000,000  were  taxed  at  rates  be- 
ginning with  1  per  cent  and  progressing  until  at  $2,000,000 
they  reached  12  per  cent.  From  this  point  the  precession  was 
similar  to  that  of  the  previous  act,  running  up  as  high  as  25 
per  cent  on  estates  over  $10,000,000. 

The  fifth  title  of  the  act  embraced  a  number  of  taxes  on  trans- 
portation and  other  facilities  and  on  insurance.  Few  changes 
were  made  in  this  group  from  the  taxes  imposed  by  the  act  of 
October,  1917.  The  tax  on  Pullman  tickets  was  reduced  from 
10  per  cent  to  8  per  cent,  but  on  the  other  hand,  telephone,  tele- 
graph, and  radio  message  charges  were  considerably  increased, 
and  a  10  per  cent  tax  was  imposed  on  leased  wires.  The  greatest 
change  took  place  in  the  two  next  groups  of  taxes — those  on 
beverages  and  tobacco.  In  general,  it  may  be  said  of  these  with- 
out going  into  detail  that  the  tax  on  distilled  spirits  and  fer- 
mented liquors,  and  on  wines  and  soft  drinks,  was  doubled. 


:   I' 

:  1  .. 


180 


DIRECT  AND  INDIRECT  COSTS  OF  THE  WAR 


Those  on  cigars,  cigarettes  and  tobacco  were  subjected  to  an  in- 
crease of  about  50  per  cent. 

The  taxes  on  admissions  and  dues  were  continued,  but  a  more 
careful  classification  was  made  of  admission  prices  and  different 
classes  of  amusements  which  tended  on  the  whole  to  raise  the 
rates  of  this  group.  The  tax  was  made  to  apply  to  all  club  dues 
over  $10  per  annum  instead  of  $12  as  in  the  previous  act. 

The  ninth  title  of  the  act  embraced  a  miscellaneous  assort- 
ment of  excise  taxes.    This  group  was  now  greatly  enlarged  by 
the  addition  of  a  number  of  nonessentials  and  luxuries.    The  fol- 
lowing were  some  of  the  articles  taxed:  automobiles,  motorcycles, 
motor  accessories,  pianos  and  other  musical  instruments,  sport- 
ing goods,  chewing  gum,  cameras,  photo  films,  candy,  firearms, 
Ininting  knives,  swords  and  similar  articles,  electric  fans,  ther- 
mos bottles,  cigarette  holders,  humidors,  slot  machines,  liveries, 
riding  habits  and  boots,  articles  made   of   fur,  yachts,   motor 
l)oats  and  canoes,  toilet  soaps  and  powders.    In  addition  to  these, 
sumptuary  taxes  were  laid  on  a  large  number  of  luxuries  or  high 
priced  articles.     A  tax  of  10  per  cent  was  imposed  on  prices  in 
excess  of  si)ecified  minimums  in  the  case  of  carpets,  rugs,  picture 
frames,  trunks,  valises,  purses,  lamps,  umbrellas,  fans,  smoking 
jackets,    waistcoats,   hats,    footwear,   neckwear,   silk   stockings, 
men's  shirts,  nightgowns,  kimonos.    And  finally,  a  small  group 
of  articles  evidently  regarded  as  pure  luxuries  was  taxed  a  cer- 
tain percentage  irrespective  of  their  price.    This  group  included 
jewelry,   precious  stones,   watches,  moving  picture  films,   per- 
fumes, toilet  compounds,  and  medicinal  compounds. 

Under  the  head  of  "special  taxes"  provision  was  made  for  the 
taxation  of  brokers,  commission  merchants,  capital  stock  of  cor- 
porations, and  proprietors  of  amusements.  The  taxes  on  brokers 
were  greatly  increased;  that  on  corporate  capital  stock  was 
doubled  in  rate  and  the  exemption  minimum  reduced  from 
$99,000  to  $5,000.  The  tax  on  proprietors  of  theaters,  museums 
and'  concert  halls,  circuses,  bowling  alleyes  and  billiard  rooms 
was  doubled,  and  some  new  classes  subjected  thereto,  such  as 
street  fairs,   shooting  galleries,  riding  academies,  and  automo- 


UNITED  STATES 


181 


biles  tor  hire.  On  the  whole,  these  taxes  were  in  line  with  those 
described  in  the  previous  paragraph,  and  were  designed  to  place 
a  heavy  burden,  even  to  the  point  of  discouragement,  upon  activ- 
ities or  transactions  regarded  as  nonessential.  In  similar  fashion 
the  taxes  on  manufacturers  of  tobacco  were  drastically  raised 
by  a  finer  classification  according  to  the  sales,  which  resulted  in 
much  heavier  taxes  on  the  larger  dealers. 

Stamp  taxes  under  existing  laws  were  evidently  found  satis- 
factory, for  practically  no  change  was  made  in  this  group. 

There  was  written  into  this  tax  measure  a  new  federal  child 
lalwr  law,  which  proposed  by  resort  to  taxation  to  prevent  the 
employment  in  certain  specified  industries  of  children  under  four- 
teen years  of  age,  and  to  prohibit  the  employment  in  others 
of  children  between  fourteen  and  sixteen  years  for  more  than 
eight  hours  a  day,  and  in  the  night  time.  This  was  done  by 
imposing  an  excise  tax  equivalent  to  10  per  cent  of  the  entire 
net  profits  of  such  employer.  Heavy  penalties,  ranging  from 
$1,000  to  $10,000  were  imposed  for  infraction  of  the  law.  The 
purpose  of  the  act  was  of  course  not  revenue,  but  the  prohibition 
of  child  labor,  and  an  effort  was  made  by  the  weapon  of  taxa- 
tion to  frame  a  law  which  might  escape  the  fate  which  overtook 
the  Child  Labor  l^w  of  1916,  which  was  declared  unconstitu- 
tional by  the  United  States  Supreme  Court  in  Jure,  1918. 

The  returns  from  the  new  tax  measure  began  immediately,  for 
within  three  weeks  of  its  passage  the  first  instalment  of  the  in- 
come tax  fell  due.  For  the  first  time  this  tax  was  now  made 
payable  in  four  instalments.  The  first  payment  on  March  15 
amounted  to  over  $1,000,000,0':0  and  gave  promise  that  the  new 
act  would  raise  the  anticipated  revenue.  For  the  calendar  year 
1918  the  total  revenue  receipts  amounted  to  $4,707,532,307,  and 
for  the  fiscal  year  ending  June  30,  1919,  to  $5,152,257,136,  or 
somewhat  less  than  was  anticipated. 


!'■ ,;  I- 


ilr 


u  ;i] 


rii  -li 


182 


DIRECT  AND  INDIRECT  COSTS  OF  THE  WAR 


The  following  table  shows  briefly  the  results  of  the  loans  con- 
tracted by  the  United  States  in  the  prosecution  of  the  war : 


Date 

6-lS-'17 
11-1S-'17 

S-9-'18 
l(>-24-'18 

5-21-'I9 


Amount 

Asked        Amount 
Billions    Subscribed 


2 
3 
3 
6 

4.5 


$3,035,226,850 
4,617,532,300 
4,176,516,830 
6.993.073,250 
5,249,908,300 


Amount 
Accepted 
$2,000,000,000 
3,808,766.150 
4.176.576.850 
6,993,073,250 
4,500.000,000 


Redeem- 

Number of 

Rate 

able 

Subscribers 

Int. 

Payable 

4,500,000 

35 

1922-1947 

9,420,000 

4 

1927-1942 

18,376,815 

425 

1928 

21.000,000 

4.25 

1933-1938 

12,000,000 

4.75 

1923-1924 

BELGIUM 

It  is  diffiailt  to  measure  the  money  cost  of  the  war  to  Belgium, 
because  in  her  case  the  invasion  of  the  country  by  the  Germans 
involved  the  destruction  of  her  political  and  economic  life  and 
imposed  not  only  financial  burdens  which  could  hardly  be  borne, 
but  also  horrors  of  cruelty,  privation,  loss  of  life,  and  denial  of 
the  most  sacred  rights  of  human  begins.  The  subjective  costs 
of  the  war  to  the  Belgians  can  not  be  measured. 

The  impending  outbreak  of  war  in  Europe  affected  Belgium 
as  it  did  other  countries,  and  measures  similar  to  those  taken 
elsewhere  were  found  necessary  here.  The  stock  exchanges  in 
Brussels  and  Antwerp  closed  on  July  29,  and  on  August  2  a 
moratorium  was  declared  which  postponed  payment  of  bills 
accepted  before  that  date,  and  limited  cash  withdrawals  from 
banks  to  $200  each  fortnight.  The  next  day  the  bolt  fell.  The 
Germans  demanded  passage  and  were  refused.  The  story  of 
the  martyrdom  of  Belgium  does  not  belong  here,  and  the  record 
of  Belgian  finance  becomes  an  account  of  German  fines,  imposi- 
tions, and  destruction  on  the  one  hand,  and  of  loans  and  ad- 
vances to  the  Belgian  Government  by  the  Entente  Allies  on  the 
other. 

The  Belgian  banking  organization  does  not  seem  to  have  been 
seriously  disturbed.  The  gold  reserve  of  the  National  Bank  of 
Belgium,  amounting  to  practically  $50,000,000,  was  removed  to 
England  before  the  German  invasion.  On  the  other  hand,  a 
large  part  of  the  liquid  assets  of  the  Bank  as  they  existed  in 
1916  were  removed  by  the  Germans  and  reported  to  have  been 
taken  to  Berlin  for  use  in  strengthening  the  resources  of  the 
Reichsbank.*  After  the  signing  of  the  armistice,  the  reserves 
and  other  resources  of  the  Bank  were  returned,  and  as  the  other 
Belgian   banks   had   maintained   their   organization   under  the 

>  The  Americas,  published  by  National  City  Bank,  December,  1918. 


f'  il 


u 


\W~ 


•if 


m 


184  OIKKCT  AND  tNDIKECT  COSTS  OF  THE  WAR 

direction  of  (fcrman  controllers,  the  adoption  of  {wace  found 
them  ready  to  resume  oj)eration8.  The  monetary  situation  was 
di.stiirl)ed  by  the  emission  of  large  quantities  of  paper  money 
by  the  German  ndministration.  It  was  estiinated  that  almost 
$1,000,000,000  of  (Jerman  marks  were  put  into  circulation;  in 
addition  to  this,  issues  of  bank  notes  were  made,  the  amounts  of 
which  at  the  beginning  and  end  of  the  war  are  shown  in  the 
lollowing  table: 

Date  Amount 

December  31.   1913 $206,000,000 

December  1,  1914 312.000,000 

November  11,  1918 S02,000fl00 

February  4,   1919 772,000,000 

On  the  last  named  date  the  ratio  of  the  gold  reser\'e  to  the  notes 
outstanding  was  7.5  per  cent,  a  proportion  which  compared  not 
unfavorably  \\ith  that  of  other  countries  suffering  much  less 
than  Belgium. 

As  practically  all  of  Belgium  except  a  small  section  was  held 
by  the  Germans ,  there  could  of  course  be  no  system  of  taxes  or 
domestic  loans  by  which  to  raise  the  revenues  necessary  to  ma  - 
tain  the  Belgian  anuy  in  the  field  and  to  meet  other  needs. 
These  were  linanced  b\-  advances  from  the  Allies  to  a  total  of 
$1,1 54,467 ,*)14.  Of  this  amount  England  advanced  $424,351,- 
524.  France  $434,125,090.  and  the  United  States  $295,991,300. 
In  addition  to  these  advances  to  the  government,  millions  of 
dollars  were  spent  b)  these  and  other  nations  for  food  and  other 
relief  for  the  civilian  iwpulat'on  of  Belgium. 

In  his  speech  on  the  introduction  of  the  Belgian  budget  on 
March  21,  1919,  the  Minister  of  P'inance  of  Belgium  stated  that 
Germany  owed  Belgium  for  cash  requisitions  alone  $1,930,- 
000,000,  of  which  $965,000,000  represented  German  marks  in 
circulation;  8386,000,000  amounts  confiscated  from  banks,  and 
$579,000,000  fines  and  monthly  payments  levied  on  the  towns 
during  military  occupation.'  In  addition  to  these  requisitions 
the  Belgian  Commission  for  fixing  damages  occasioned  by  the 

'  Commcirial  and  l-'maiicial  Chronicle,  April  S.  1919,  p.  1338. 


'EU;HM 


185 


war  estimated  the  loss  to  proiwrty  at  $6,7"5.')00.000,  of  whicli 
about  $4,000,000,000  was  for  i/hysicai  destruction,  and  the  bal- 
ance for  theft,  pillage,  levies,  etc.  The  loss  of  the  machinery 
item  and  raw  material  alone  was  fixed  at  $1,200,1  l?.O0O. 

Assuming  that  ihe  requisitions  and  the  destruction  of  prop- 
erty will  be  nuu'^  good  by  the  payment  of  reparation  by  Ger- 
many to  Belg^.u.  the  direct  money  cost  of  the  war  to  the  latter 
country  may  be  estimated  as  equivalent  to  the  advances  made  by 
the  Allies  or  $1,154,467,914.  The  prewar  debt  as  of  December 
31,  1913,  amounted  to  $826,000,000.  This  was  somewhat  more 
than  doubled  by  the  conclusion  of  war,  amounting  then  to 
$1,980,000,000.  If,  however,  the  fines,  levies  and  other  direct 
money  outlays  be  included,  as  they  properly  should  be  in  order 
to  show  Belgium's  contribution  to  the  war.  the  total  cost  would 
fall  not  far  short  of  $3,000,000,000. 


«,-.*fr 


"t  '• : 


JAPAN 

Japan  declared  war  on  Germany  on  August  23,  1914,  and 
alxjut  ten  days  later,  September  3,  the  EHet  met  to  vote  credits 
for  meeting  the  cost.  It  seemed  to  anticipate  a  brief  and  vic- 
torious struggle,  for  the  first  estimates  amounted  only  to  $26,- 
000,000  and  covered  the  period  to  the  end  of  the  war.  The 
whole  sum  \vas  to  be  taken  out  of  the  surplus  in  the  Treasury. 
The  Minister  of  Finance,  Wakatusuki,  stated  that  if  the  war 
continued  after  December  the  bond  redemption  fund,  the  cur- 
rency fund,  and  the  forest  fund,  amounting  in  all  to  $24,000,000, 
would  have  to  be  taken  for  the  war.  Japan's  policy  of  financing 
the  war  seem";  therefore  to  have  been  to  pay  for  it  out  of 
money  already  in  hand,  thus  avoiding  the  problem  which  con- 
fronted other  countries  of  resorting  to  loans  or  to  additional 
taxation.  The  war,  however,  was  not  to  be  so  lightly  dis- 
posed of. 

The  government  finances  of  Japan  ..ere  in  satisfactory  condi- 
tion at  the  outbreak  of  war.  Industry  and  trade,  however,  were 
in  a  rather  depressed  state,  as  Japan  had  been  suffering  for  a 
considerable  period  from  the  reaction  which  followed  the  boom 
after  the  close  of  the  Russo-Japanese  War.  New  undertakings 
were  few,  and  the  balance  of  trade  was  adverse.  These  very 
facts  had  eliminated  all  speculation  and  prepared  Japan  for  legiti- 
mate expansion  whenever  circumstances  permitted.  The  im- 
mediate situation  was  made  worse  by  the  outbreak  of  the  Great 
World  War.  Banks  contracted  their  loans,  foreign  trade  was 
retarded  by  the  disturbance  of  foreign  exchange  and  the  rise  of 
insurance  rates,  and  the  market  for  Japan's  chief  staple,  silk, 
was  particularly  hard  hit.  The  underlying  economic  situation 
was  good,  and  there  were  several  factors  which  made  Japan's 
position  extraordinarj".  There  was  a  large  surplus  in  the  na- 
tional Treasury,  sufficient  indeed  to  enable  the  government  to 


r  I 


JAPAN 


187 


prosecute  the  war  during  the  first  few  months  without  resort  to 
loans.  The  general  econanic  world  was  in  a  cautious  attitude, 
which  was  strengthened  by  the  raising  of  the  discount  rate  by  the 
Bank  of  Japan  on  July  6.  The  circulation  of  the  B't-k  had  been 
considerably  reduced  during  the  preceding  year,  so  that  it  had 
considerable  resources  at  its  command.  Since  the  country  was 
so  far  removed  from  the  general  theater  of  war,  its  military 
operations  were  on  a  small  scale,  and  its  industrial  life  was  not 
disrupted  in  anything  like  the  same  fashion  as  that  of  the  Euro- 
pean belligerents.  Consequently,  Japan  never  found  it  necessary 
to  prohibit  gold  exports  or  to  resort  to  the  issue  of  emergency 
I>aper  money,  to  establish  a  moratorium,  or  to  make  use  of  the 
other  devices  which  were  necessary  to  bridge  the  period  of  read- 
justment to  war  conditions  in  European  countries.  The  period 
of  depression  was  brief,  and  the  two  years  1915  and  1916  wit- 
nessed an  unprecedented  economic  expansion.  "In  the  first 
place,  the  arrival  of  large  orders  for  munitions  from  the  Allies 
and  similar  orders  from  the  far  east  countries  and  the  South 
Seas  where  German  imports  had  ceased  to  come,  enlivened  trade. 
In  the  second  place,  the  scarcity  of  freight  space  throughout  the 
world  and  the  abnormal  use  of  charterage  of  Japanese  ships  en- 
gaged in  foreign  trade  brought  in  its  train  a  phenomenal  activity 
of  shipbuilding.  In  the  third  place,  the  sudden  decline  in  the  im- 
ports of  chemico-industrial  products  and  of  machinery  and  the 
abnormal  advance  in  their  price  stimulated  the  launching  of  en- 
terprises in  these  lines  at  home.  Lastly,  the  marked  accumu- 
lation of  funds  owing  to  the  combined  result  of  the,  first  two 
factors  facilitated  the  expansion  of  trade  and  industries.'" 

The  direct  expenditures  on  the  war  did  not  amount  to  much, 
as  Japan's  active  participation  at  the  beginning  was  limited  to  the 
capture  of  Kiaochau.  The  government  also  extended  assistance 
to  certain  interests  that  were  adversely  affected  by  the  war.  It 
guaranteed  war  marine  insurance  and  set  aside  out  of  the  na- 
tional Treasury  the  sum  of  $4,000,000  for  the  relief  of  raw  silk 
producers  and  other  exporters.     Owing  to  the  enforcement  of 

>  The  Eighteenth  Financial  and  Economic  Annual  of  Japan,  1918,  p.  155. 


y.  •: 


!:•  .; 


11 


'i 


..J .   ■  ■  I 


m 


188  DIRECT  AND  INDIRECT   COSTS  OF  THE   WAR 

Strict  econom>-.  it  was  even  pf)ssible  to  iiiake  the  civil  budget 
show  a  decrease  in  the  first  two  years  of  the  war.  The  follow- 
ing table  shows  the  receipts  and  expenditures  for  the  civil 
budget : 

RFAa-.NUES  AND  EXPENDITURES  OF'  JAPAX,  1914-1918 
(In  millions  of  dollars) 

1914-15     1915-16     1916-17    1917-18 

KXPENDITURES  : 

Ordinary 207.9  201.4  198.7  221.4 

Extraordinary 103.9  93.7  77.9  148.9 

Total 311.8  295.1  276.6  370.3 

Revenues  : 

Ordinary 267.0  262.1  311.0  376.1 

Extraordinary 120.1  48.3  95.6  162.6 

Total 327.1  310.4  406.6  538.7 

A  Study  of  these  budgets  reveals  significant  changes  in 
Japanese  finance  during  the  first  three  years  of  the  war.  Ex- 
penditures showed  an  actual  decline.  The  decline  in  the  rev- 
enues for  the  first  year  was  more  than  made  good  by  the  large 
increase  during  the  following  year.  This  was  due  primarily  to 
the  increase  in  customs  duties  as  a  result  of  the  expansion  of 
trade  which  was  going  on  during  this  time.  During  the  first 
four  years  of  the  war  ending  August.  1918,  the  total  exports  of 
Japan  aggregated  $2,498,500,000  while  the  imports  were 
$1,858,000,000,  leaving  a  favorable  balance  for  this  period  of 
$640,500,000.  This  was  in  striking  contrast  with  the  prewar 
situation,  for  in  the  eighteen  years  ending  in  1914  there  were 
only  two  (1906  and  1*^09)  which  showed  a  favorable  balance  of 
trade.  The  excess  of  exports  was  due  to  large  orders  for  grain, 
cotton,  raw  silk,  copper,  steamships  and  miscellaneous  goods, 
especially  from  America,  India.  China  and  the  South  Seas. 
Japan  took  her  pay  for  these  excess  exix>rts,  as  did  the  United 
States,  partly  in  gold  and  partly  in  the  purchase  of  securities 
issued  by  foreign  governments. 

The  increase  of  specie  in  Japan  during  the  first  two  years  of 
war  was  estimated  at  about  $250,000  000  or  an  increase  of  about 


ml 


JAPAN  189 

50  per  cent.  One  of  the  problems  which  confronted  Japan  was 
that  of  avoiding  the  bad  effects  of  this  plethora  of  gold.  The 
other  belligerent  countries  were  under  no  such  embarrassment, 
as  their  war  expenditures  absorbed  all  their  surplus  funds.  In 
Japan  the  situation  was  met  by  the  redemption  of  the  public  debt, 
of  which  a  considerable  part  was  paid  off  during  these  years. 
This  is  shown  in  the  follow  ing  table : 

REDUCTION  OF  JAPAN'S  NATIONAL  DEBT 

Year  Amount  Paid  Off 

1914-15 $38,875,632 

1915-16 8.568.407 

1916-17 10,766.245 

1917-18    Increase 15,521,186 

In  spite  of  the  application  of  a  considerable  part  of  the  Treas- 
ury' surpluses  to  debt  payment,  the^ew  money  got  into  circulation 
or  into  the  reserves  of  the  banks  where  it  formed  the  basis  of 
additional  note  issues.  The  banks  were  called  upon  to  provide 
additional  funds  for  government  operations  and  also  to  furnish 
credit  to  private  industry  which  was  now  showing  sl,  notable  ex- 
pansion, especially  in  manufacturing  and  mining.  Conspicuous 
development  tock  place  in  the  chemical,  mineral,  textile,  and 
shipbuilding  industries.  In  mining  silver,  copper,  coal,  iron, 
and  sulphur  showed  the  greatest  increase  in  production.  The  total 
amount  of  investment  in  the  creation  of  new  and  the  expansion 
of  old  undertakings  for  the  first  four  years  of  the  war  reached 
about  $1,100,000,000,  the  greater  part  of  which  went  into  manu- 
facturing and  mining  industries.  The  monetary  and  banking 
expansion  in  this  four  year  period  is  briefly  shown  in  the  follow- 
ing table: 

Item                                                           Aug.  1,  1914  Aug.  1,  1918 

Coin  in  circulation $89,500,000  $104,500,000 

Note  issues  Bank  of  Japan 165,500,000  385,000,000 

Specie  reserve  Bank  of  Japan 108,500,000  322,500,000 

Tokio  Associated   Banks,   deposits 219,500,000  831,500.000 

Osaka  Associated  Banks  deposits 116,500,000  540,500,000 

Prices  for  commodities  showed  the  same  increase  in  Japan 
during  this  period  as  they  did  in  the  rest  of  the  world,  the 


I 


■ 


190 


nrRIXT    ANT)   IXDIRKCT   COSTS  OK  THE   \V.\K 


! 


%v\.- 


average  index  number  of  prices  of  coinincxlities  in  TokJo  show- 
ing a  rise  of  103.8  per  cent  in  the  period  covered  by  this  table. 

In  addition  to  payment  of  gold,  a  second  method  of  financing 
the  large  e.xports  of  Japan  to  foreign  countries  was  by  taking 
the  government  securities  of  those  countries.  To  the  end  of 
1917  Japan  todc  the  bonds  of  Great  Britain  to  the  amount  of 
$265,000,000;  of  Russia  for  $127,000,000;  and  France  for 
$77,500,000.  Japan  also  redeemed  ii  "-reign  markets  govern- 
ment loans  and  company  debentures  t  the  amount  of  $110,- 
000,000,  giving  a  total  of  about  $579,500,000.  By  August  1, 
1918,  the  total  advances  to  Great  Britain,  Russia  and  France 
had  reached  $593,000,000. 

The  war  was  not  to  pass,  however,  without  a  resort  by  Japan 
to  a  loan  on  her  own  account.  On  April  26.  1917,  the  govern- 
ment arranged  a  loan  with  the  leading  Japanese  banks  for 
$20,000,000  bearing  5  per  cent,  the  issue  price  being  fixed  at  95. 
The  redemption  was  to  be  made  within  fifteen  years;  the  lowest 
denomination  of  bond  was  $25.  Half  of  the  loan  was  to  be  de- 
voted to  railway  extension.  As  a  result  of  this  loan  there  was  a 
net  increase  in  the  debt  of  about  $16,000,000  during  the  fiscal 
year.  The  total  debt  at  the  end  of  the  fiscal  year  in  1918 
amounted  to  $1 ,249.372.405. 

Such  was  the  prosperity  of  Japan  during  the  first  four  years  of 
the  war  that  it  was  not  found  necessary  to  impose  new  taxation. 
In  fact,  the  reverse  process  was  adopted,  of  reducing  some  of 
the  more  burdensome  and  obnoxious  taxes.  Many  of  these  had 
been  imposed  after  the  Russo-Jai>anese  War  and  formed  a  bur- 
densome and  complicated  system.  Beginning  from  about  1908. 
agitation  had  l>een  carried  on  for  the  reduction  of  some  of  these 
taxes  and  four  adjustments,  so-called,  were  carried  through. 
The  first  lowered  the  land  tax,  thus  relieving  the  farmers'  bur- 
dens. The  second  reduced  the  income  tax,  lowered  the  price  of 
salt,  and  abolished  the  import  duties  on  rice  from  Korea  to 
Japan.  The  third,  which  was  to  go  into  effect  during  the  year 
1915-16,  comprised  reductions  in  the  business  tax,  inheritance 
tax,  land  tax,  and  the  commissions  to  civic  corporations  for  col- 


JAPAN 


191 


lecting  national  taxes.  The  fourth  made  still  further  changes 
resulting  in  the  saving  of  about  $4,700,000  annually.  Not  until 
the  budget  of  1918-19  was  brought  in  were  new  taxes  imposed. 
At  this  time  it  was  proposed  that  the  incc»ne  tax  and  the  tax  on 
sake  should  be  increased ;  that  the  price  of  tobacco,  which  )was  a 
state  monopoly,  should  be  raised  about  17  per  cent;  and  that  a 
war  profits  tax  should  be  introduced.  This  tax  was  to  be  as- 
sessed on  that  portion  of  the  profits  which  was  in  excess  over 
•  those  of  peace  times  at  the  rate  of  20  per  cent  for  corporations 
and  1 5  per  cent  for  individuals.  As  the  tax  was  to  be  rescinded 
with  the  return  of  peace,  its  life  has  been  a  short  one. 

The  financial  prosperity  and  adversity  of  Japan,  due  to  war, 
have  become  so  intermingled,  that  the  latter  is  difficult  to  extract. 
As  announced  by  the  Finance  Department  in  its  account  for  the 
fiscal  year  ending  March  31,  1915,  the  expenditure  due  to  war 
amounted  to  $40,000,000.' 

^Economist,  London,  June  19,  1915,  p.  124.1. 


m. 


r  I 


ROUMANIA 

Rouiiiania's  condition  was  fairly  sound  at  the  outbreak  of  the 
luiropean  war.  She  had  probably  been  less  hurt  by  the  Balkan 
wars  than  any  of  the  other  belligerents.  Budgets  for  some 
years  had  shown  suljstantial  surpluses,  and  the  state  railway, 
forest,  domain,  fisheries,  and  salt  and  tobacco  monopolies  yielded* 
revenue  sufficient  for  her  needs.  The  public  debt,  which  was 
held  principally  in  Germany,  France,  Holland,  and  Switzerland, 
amounted  in  1914  to  $343,077,200.  A  further  sum  of  $25.- 
000,000  was  borrowed  in  Great  Britain  early  in  1915,  taking  the 
form  of  an  advance  by  the  Bank  of  England  against  Roumanian 
Treasury  bills.  Another  British  loan  of  $30,000,000  was  ob- 
tained in  April,  1916.  Roumania  had  also  profited  during  the 
first  two  years  of  the  war  from  the  sale  of  her  grain,  petroleum, 
and  other  products  which  she  marketed  with  impartiality  be- 
tween the  Central  Powers  and  the  Entente  Allies.  She  finally 
decided,  however,  to  cast  her  lot  with  the  latter,  and  on  August 
17,  1916,  declared  war  on  Austria-Hungary.  As  a  result  of 
misguided  military  operations,  which  were  based  upon  political 
rather  than  strategic  considerations,  Roimiania  was  forced  to 
conclude  peace  with  the  Central  Powers  on  May  6,  1918.  The 
cost  of  twenty  months  of  war  to  Roumania  was  defrayed  prac- 
tically entirely  by  advances  from  Great  Britain.  A  loan  of 
$6,666,000  was  made  to  Roumania  through  Russia  on  Septem- 
ber 5,  1917,  by  the  United  States,  but  was  never  delivered,  owing 
to  the  Russian  revolution. 

Xo  internal  loans  seem  to  have  been  raised,  nor  were  taxes 
increased  during  the  war  period. 

In  June  the  Roumanian  national  debt  was  estimated  to  amounL 
to  about  $2,000,000,000.  Subtracting  the  prewar  debt,  the  cost 
of  the  war  may  therefore  be  estimated  at  about  $1,600,000,000. 
This  figure  does  not  include,  however,  the  losses  involved 
through  the  issues  of  i)aper  money  and  the  depreciation  of  the 


ROUMANIA 


19.? 


currency.  When  the  invasion  of  Roumania  by  the  Central 
Powers  was  imminent  the  funds  of  the  national  Treasury  of 
Roumania,  estimated  at  about  $173,700,000,  were  unfortunately 
removed  from  Bucharest  to  Moscow  for  safekeeping.  The  later 
turn  of  events  in  Russia  prevented  their  withdrawal  from  that 
country,  and  has  made  their  recovery  problematical.  There  are 
at  present,  therefore,  no  coin  reserves  for  the  redemption  of 
Roumanian  paper  currency.  The  currency  situation  was  made 
worse  by  the  issue  on  the  part  of  the  Germans  of  considerable 
quantities  of  paper  money  during  their  occupation  of  Roumania, 
so  that  the  country  was  left  with  a  greatly  depreciated  currency. 


i'l 


I 


|i 


Hi 


I'  M 


I!  i 

(, 


i  i' 

!  -'A 


OTHER  ENTENTE  ALLIES 

In  the  case  of  the  remaining  Entente  Allies  no  attempt  will 
l>e  made  to  give  a  complete  statement  of  the  methods  adorned  to 
finance  the  war  as  the  data  are  lacking  for  such  a  study.  The 
most  that  can  \x  done  is  to  estimate  as  accurately  as  possible  the 
ci>st  of  the  war  to  the  smaller  countries. 

Serbi.\  :  The  e.\i)enditures  of  Serbia  were  financed  chiefly  by 
ad\  ances  on  the  part  of  Great  Britain,  France,  and  more  recently, 
the  United  States.  The  advances  of  the  last  named  government 
down  to  August  7,  1919,  amounted  to  $26,780,466.  The  re- 
mainder was  shared  in  practically  equal  amounts  by  Great  Britain 
and  f'rance.  The  cost  of  the  war  to  Serbia  was  estimated  by  the 
Paris  Temps  at  $399,400,000.  towards  the  end  of  the  year  1918. 

Greece:  Although  Greece  participated  only  in  the  last  two 
years  of  the  war.  her  war  expenditures  exceeded  by  far  those 
of  the  Balkan  wars.  The  national  debt,  which  in  1914  was 
$243,000,000,  rose  to  $486,000,000  by  December  31,  1918,  an 
increase  of  $243,000,000.  in  addition  to  this  considerable  sums 
were  raised  by  the  introduction  of  new  taxes  or  the  increase  of 
old  ones.  An  income  tax  was  introduced  for  the  first  time ;  the 
rates  of  the  inheritance  tax  were  increased;  and  heavy  con- 
sumption taxes  were  imposed  upon  many  nonessentials.  The 
increases  in  the  tax  revenues  are  shown  in  the  fol'iowing  table: 


Year  Amount 

1914 $44,179,548 

1915 47.045,698 

1916 46,003,690 

1917 52.581.081 

1918 57.584.360 

Assuming  that  the  taxes  raised  during  the  year  1914  repre- 
sent normal  i»eace  time  revenues,  it  is  evident  from  the  table 
that  the  excess  of  revenues  over  normal  during  the  period  of  the 


I  ;^'> 


OTHER  ENTENTE  ALLIES 


195 


war  was  about  $27,000,000.  If  this  be  added  to  the  increase  in 
the  debt,  the  total  cost  of  the  war  to  Greece  may  be  set  down  at 
about  $270,000,000. 

The  other  Allies  were  Brazil.  China.  Cuba.  Guatemala.  Haiti, 
Honduras,  Liberia.  Montenegro.  Nicaragua,  Panama.  Portugal, 
San  Marino,  and  Siam.  A  liberal  estimate  of  the  aggregate  cost 
of  the  war  to  these  governments,  so  far  as  they  made  any  direct 
outlay  for  this  purpose,  would  be  about  $500,000,000. 


'  I, 


Ij, ,, 


V-!! 


II    ■ !  I 


GERMANY 

To  anyone  who  doubts  the  responsibility  of  Germany  for 
bringing  on  the  war,  a  study  of  the  financial  measures  prior  to 
and  immediately  following  the  declaration  of  war  must  bring 
conviction  that  it  was  carefully  planned  and  provided  for.' 
Within  a  week  after  the  declaration  of  war  an  elaborate  series 
of  measures  intended  to  secure  the  needed  credit  to  industry  and 
to  the  government  and  to  supply  a  plentiful  amount  of  cash,  was 
put  into  operation. 

A  financial  expedient  which  dates  back  to  the  days  of 
Frederick  the  Great,  and  which  has  generally  received  approval 
from  the  German  writers  on  finance,  is  the  "war  chest."  This 
is  a  stock  of  money  specifically  reserved  for  war  purposes. 
Thirty  million  dollars  in  gold  was  taken  out  of  the  French  in- 
demnity in  1871  and  was  stored  in  the  Julius  Tower  at  Spandau. 
By  act  of  July  3,  1913,  the  amount  of  gold  in  the  war  chest  was 
to  be  doubled,  and  Treasury  notes  were  authorized  for  the  pur- 
chase of  the  additional  amount*  At  the  time  of  the  outbreak  of 
war  some  $21,000,000  of  the  additional  sum  had  been  secured, 
so  that  in  July,  1914,  the  "war  chest"  amounted  to  about 
$51,000,000. 

Another  act  passed  in  1913  was  the  levy  of  the  Wehrbeitrag, 
a  nonrecurring  tax  on  incomes  and  property,  which  was  de- 
signed to  raise  some  $250,000,000.  This  was  to  meet  the  addi- 
tional expenses  involved  in  the  enlargement  of  the  army  in 
answer  to  the  introduction  of  the  three  year  plan  of  military 
service  in  France.'    The  tax  on  real  property  was  a  graduated 

>  Cf.  C.  F.  Speare,  "Europe's  Preparation  for  War  Expenses."  Review  of 
Reviews,  SO:  322-325.  There  is  considerable  literature  by  German  writers, 
both  articles  and  books,  on  prewar  finance. 

2  L.  Katzenstein,  Der  Preussische  Staatsschatz  und  der  Reichskriegsschatz, 
in  Jahrbuck  fur  gesammte  Verwaltung  und  Volkswissenschaft,  XXXVI  4 
pp.  79-112. 

'  F.  W.  R.  Zimmermann,  Die  Finanswirlschaft  des  Deutschen  Reickt  und 
der  deutschen  Bundesstaaten  rK  Kriegsausbruch,  1914  (Berlin,  1916),  p.  68— 
H.  Koppe.  Die  Reichssteuerreform  von  1913,  Fina    -Archiv  (1914)  31 :  254- 

01 7. 


11 


GERUANY 


197 


one  with  rates  ranging  from  .15  per  cent  on  small  properties  oi 
$2,500  up  to  1.5  per  cent  on  the  largest  properties  in  excess  of 
$1,250,000.  The  income  tax  wa*  also  a  progressive  tax,  begin- 
ning with  1  per  cent  on  incomes  over  $1,250  and  increasins:  to 
8  per  cent  on  incomes  over  $125,000.  This  tax  was  to  be  paid 
in  three  instalments  in  1913,  1914,  and  1915,  respectively,  but 
the  first  instalment  was  postponed  until  1914  and  later  payments 
became  involved  in  other  taxes.  In  the  budget  of  1913  the 
Wehrbeitrag  was  estimated  at  $104,196,750.  According  to  final 
figures  published  in  July,  1918,  the  actual  yield  from  this  source 
during  the  war  was  $241,713,250.  There  is  little  doubt  that  the 
threat  of  this  drastic  taxation  was  one  of  the  factors  which  led 
the  Junkers  to  prefer  war  to  a  continuance  of  military  burdens.* 
They  advocated  war  with  the  expected  indemnities  and  terri- 
torial acquisitions  in  the  hope  that  these  would  render  further 
taxation  unnecessary. 

In  still  other  ways  the  government  was  preparing  itself  finan- 
cially for  the  conflict.  For  some  years  before  1914  it  had  been 
endeavoring  to  increase  the  gold  reserve  in  the  country.  The  old 
'.heory  that  the  monetary  system  of  a  country  was  strengthened 
by  having  a  large  circulation  of  coins  within  the  country  which 
could,  if  necessary,  in  time  of  war  be  displaced  by  issues  of 
paper  money,  was  abandoned  in  favor  of  a  policy  oi  having  a 
permanent  paper  currency  protected  by  a  rtrong  gold  reserve. 
According  to  this  newer  theory,  the  gold  stock  of  the  country 
should  be  ccmcentrated  in  the  custody  of  the  central  bank  of  issue, 
and  as  a  corollary  to  this  principle,  the  notes  of  this  bank  must 
be  made  a  legal  tender.*    This  was  done  in  Germany  in  1909. 

At  the  same  time,  in  order  to  insure  the  circulation  in  large 
amount  of  the  notes  of  the  Reichsbank,  the  lowest  denomination 
was  reduced.  By  the  law  of  1875  the  lowest  denomination  of  a 
note  of  the  Reichsbank  had  been  fixed  at  100  marks.  On  Feb- 
ruary- 24,  1906,  this  was  reduced  to  50  marks  and  20  marks,  but 

ij.  H.  Rose,  The  Origini  of  the  War  (Cambridge,  1914),  p.  163. 
*  C.  A.  Conant,  "Currency  Policy  and  the  European  War,"  Journal  Political 
Economy.  22:  717-73S. 


198 


DIKECT  AND  INDIRECT  COSTS  OF  THE  WAR 


!■    f 


,' 


i.'l 


i 


the  small  notes  were  to  Iw  limited  to  $75.(XX).lX)C).  In  1012  this 
limitation  was  removed.  As  the  small  notes  were  put  into  cir- 
culation, the  fjoUl  which  they  displaced  was  collected  and  held 
hy  the  Reichshank.  [between  June  29,  1912.  and  I>cceml)«r  31. 
19LV  the  circulation  of  notes  of  50  and  20  marks  increased  by 
$8I.250.(XH).  .  r  from  $89.250.0(X^  to  $170.5tXl.(XX):  at  the  same 
time  the  gold  holdings  of  the  Imjierial  Bank  increased  hy  $70,- 
.S(X),(XX).  or  from  $222.0lK).000  to  $2<)2, 300,000. 

In  furtherance  of  the  governmental  |)olicy  of  financial  pre- 
paredness, the  control  of  the  Reichshank  over  the  other  banks 
of  the  Kmpire  was  extended  and  intensified.  Joint  .stock  lanks 
were  refjiiired  to  [niblish  more  fre(|uent  reports,  to  keep  larger 
<lei»osits  with  the  Reichshank,  and  to  so  order  the  granting  of 
their  credit  facilities  that  these  would  assist  the  government  in 
the  event  of  war. 

Preparations  to  avoid  a  disturbance  to  the  money  market  had 
been  carefully  made,  but  in  spite  of  all  precauticjns  the  actual 
outbreak  of  war  produced  the  customary  sh(K-k  to  creol  The 
panic  first  showed  itself  on  the  stock  exchange,  resultin  in  a 
serious  fall  in  quotations  beginning  even  liefore  July  23,  the  day 
of  .Austria's  idtimatum  to  Serbia,  and  cimtinuing  until  the  closing 
of  the  bourse  on  July  29.  The  stock  exchange  panic  was  fol- 
lowed by  a  run  on  the  banks  for  gold.  The  private  banks  for 
some  days  paid  out  only  20  per  cent  of  their  deposits  in  gold,  and 
upon  the  declaration  of  war,  stopped  gold  payments  altogether. 
There  was  a  run  on  the  Imperial  Bank  by  people  who  endeavored 
to  exchange  their  notes  into  gold.  After  losing  over  $25,000,000 
in  the  week  ending  July  31,  the  Imperial  Bank  gave  notice  on 
this  last  named  <late  that  it  wmdd  no  longer  redeem  its  notes  in 
gold.  Much  money  was  also  drawn  out  of  the  savings  banks. 
Most  of  this  was  hoarded,  and  as  a  result  of  this  hoarding,  the 
small  coins  almost  entirely  disappeared,  resulting  in  great  incon- 
venience to  business.  The  silver  coin  from  the  "war  chest"  was 
used  to  fill  the  vacuum,  but  this,  too,  was  soon  withdrawn  from 
circulation  and  hoarded.  Disappearance  of  the  fractional  coin 
led  to  a  still  further  reduction  in  the  denomination  of  Treasury 


-I  i 


r.ERMANY 


19«) 


notes  to  ten  marks.  N'otes  of  the  loan  bureaus  were  immediately 
issued  in  denominations  of  one  and  two  marks.  I^ter  the  gov- 
ernment was  forced  to  supply  the  lack  of  fractional  coins  by  an 
issue  of  $6,250,000,  in  iron,  and  still  later  by  zinc  coins  to  an 
ajTKregate  of  $4,000,000. 

The  declaration  of  war  was  f()Ilowed  by  the  jn-omulgation  of 
orders  and  the  passage  of  legislation  which  had  been  carefully 
prepared  in  advance  to  meet  just  such  a  contingency.  The  gold 
in  the  war  chest  was  transferred  to  the  Imperial  Bank  where  it 
became  the  basis  of  note  issues  for  three  times  its  amoimt.  The 
Reichstag  met  in  special  session  on  August  4  and  passed  a  series 
of  financial  measures.  The  first  of  these  was  a  vote  of  credit  of 
.$1 ,250.000,(XX).  Another  law  made  the  imperial  Treasury  notes 
legal  tender,  and  suspended  specie  payments  both  for  these  and 
for  the  notes  of  the  Reichsbank.  The  Treasury  notes  (Rcichs- 
kasscnschcittc)  were  authorized  by  act  of  April  30.  1874.  which 
permitted  the  issue  of  $30,000,000.  .Mthough  they  were  de- 
signed to  serve  emergency  needs,  the  government  had  always 
made  full  use  of  the  permission  g^nted  so  that  it  had  a  non- 
interest  bearing  debt  of  this  amount.  These  notes  had  always 
been  receivable  for  all  public  dues,  but  had  never  before  been 
given  the  legal  tender  quality.* 

The  mo.*t  far  reaching  act  of  all,  however,  was  that  which 
provided  for  the  establishment  of  the  "loan  bureaus"  (Dar- 
Ichnskasscn) .  The  principle  of  these  banks  was  not  new,  dating 
back  to  experiments  first  made  \n  Prussia  in  1848.  They  had 
also  been  used  during  the  Franco-Prussian  War.  They  were 
based  essentially  upon  the  principle  of  the  pawnshop,  and  were 
authorized  to  loan  upon  securities,  merchandise,  or  other  col- 
lateral which  would  not  be  accepted  by  an  ordinary  commercial 
bank.  According  to  the  system  worked  out  by  the  German  finan- 
ciers, the  Reichsbank  was  to  be  left  free  to  meet  the  needs  of  the 
government  in  financing  its  military  campaigns  and  to  protect 
the  gold  reserve.    But  in  order  to  supply  industrial  and  commer- 

'  F.  W.  R.  Zimmermann.  Die  Finanswirtschaft  des  Deutschcn  Reichs  und 
der  dcutschen  Bundesstaaten  su  Kriegsausbruch  1914  (Berlin,  1916),  pp.  17, 18. 


JOG 


DIRIXT  AND  INDIRECT  COSTS  OK  THE   WAR 


liv 


i     I 


J  I 


cial  needs  for  credit,  especially  those  not  usually  met  by  an  or- 
dinary bank,  temporary  institutions  were  created.  Of  these  the 
most  important  were  the  loan  bureaus,  which  were  so  carefully 
planned  before  the  war  that  even  the  locations  were  selected  and 
the  personnel  of  the  chief  institutions  decided  upon.'  The  loans 
were  to  be  made  in  loan  bank  notes  which  were  not  given  the 
legal  tender  quality  but  were  made  receivable  for  all  public  dues. 
The  issues  of  the  loan  banks  were  at  first  limited  to  $375,000,000, 
but  a  month  later  the  limit  was  extended  to  $750,000,000  in 
order  to  facilitate  payments  on  the  first  war  loan.  Loans  might 
be  made  on  five  classes  of  collateral — 

(  a )  (3n  nonper'shable  inerchandise,  not  to  exceed  40  per  cent 
of  its  market  value; 

(  b)   On  certain  industrial  stocks  up  to  50  per  cent; 

(  c )  On  bonds  up  to  60  per  cent  of  their  market  value ; 

( (1)  On  German  cummunal,  provincial,  and  railway  securities 
up  to  70  per  cent ;  and 

( e )  On  obligations  of  the  Empire  or  of  a  German  state,  up 
to  75  per  cent. 

By  the  end  of  the  year  the  number  of  loan  bureaus  had  in- 
creased to  99,  with  127  agencies.  The  rate  of  interest  charged 
was  somewhat  higher  than  the  bank  rate,  being  about  6.5  per 
cent.  The  loans  ran  fn  ti  three  to  six  months,  but  were  generally 
renewable.  As  they  were  designed  to  meet  the  needs  of  small 
merchants  and  individuals  of  limited  means,  the  loans  were 
granted  in  amounts  as  small  as  $25. 

The  well  worked  out  plan  of  credit  organizations  which  had 
lieen  prepared  by  German  bankers  also  included  two  other  credit 
institutions:  the  first  of  these  was  the  municipal  loan  bureaus 
which  furnished  loans  to  small  merchants,  and  to  hand  workers, 
though  at  a  somewhat  higher  rate  of  interest  than  that  charged 
hy  the  loan  bureaus.  The  assets  accepted  as  collateral  for  these 
In.ms.  however,  were  such  as  would  not  have  been  acceptable  at 
the  loan  bureaus.  Finally,  war  credit  banks  {Kriegscreditban- 
ken  )    were  organized  for  the  purpose  of  facilitating  loans  for 


W.  K.  Lagerquist.  "War  Finances  of  Germany,"  Moody,  19:  561-566. 


GERMANY 


201 


subscriptions  to  the  war  bonds.  These  were  organized  by  boards 
of  trade,  by  states  and  municipalities,  and  even  by  the  larger 
banks  themselves.  Loans  were  made  on  stocks  of  goods  or  on 
personal  notes.  By  means  of  these  various  credit  institutions, 
the  attempt  was  made  to  render  liquid  all  the  wealth  of  German 
citizens.  It  was  sought  to  avoid  resort  to  a  moratorium  and  at 
the  same  time  to  provide  the  machinery  for  keeping  business 
active  and  securing  to  individuals  the  means  for  subscribing  to 
the  various  war  loans. 

It  has  been  the  boast  of  German  financiers  that  their  country, 
unlike  England  and  the  other  Entente  AiHes,  had  so  perfected 
their  credit  machinery  that  it  was  not  necessary  in  Germany  to 
resort  to  a  moratorium.  The  legislation  passed,  however,  while 
avoiding  the  name,  produced  practically  the  same  result.  "The 
conditions  prevailing  during  the  first  week  of  the  war,"  wrote 
Dr.  Otto  Brandt,  "were  the  conditions  of  a  general  moratorium, 
although  a  moratorium  had  not  been  officially  declared.  An 
actual  moratorium,  however,  is  no  better  than  a  legal  one."* 
The  government  authorized  the  abrogation  of  private  contracts 
for  payment  in  gold  entered  into  prior  to  July  1,  1914.  By 
edict  of  the  Bundesrath  on  August  6,  the  payment  of  bills  and 
checks  was  extended  for  thirty  days,  and  afterwards  was  post- 
poned from  time  to  time  until  May  17,  1915.  Mortgages  were 
practically  postponed  until  the  end  of  the  war.  Maximum  prices 
for  many  commodities  were  established.  Every  shop  which 
would  not  accept  the  notes  of  the  Reichsbank,  or  which  en- 
deavored to  raise  prices,  was  immediately  closed  by  the  authori- 
ties.* On  the  other  hand,  the  establishment  of  the  various  credit 
institutions  made  it  possible  for  everyone  who  was  in  need  of 
money  to  raise  a  loan  on  his  securities  or  property.  In  this  way 
a  legal  moratorium  was  rendered  unnecessary,  but  it  was  accom- 
plished only  by  an  expansion  of  credit  and  an  inflation  of  the  cur- 
rency which  were  to  have  much  moie  serious  effects  later  than  a 
n>oratoriiun  could  possibly  have  had.     The  total  issue  of  new 

^Die  deutsche  Industrie  im  Kriege,  1914-15  (Berlin.  1916). 
-Economist  (London),  .\ugust  29,  1914,  p.  383. 


i\H 


202 


DIRFXT  AND  IXDIKECT   COSTS  OF  THE  WAR 


»■      i 


IH 


ai 


s1 


11 


^'i  ■ 


currency  and  bank  money  required  during  August  and  Sep- 
teml)er  t.)  avoid  resort  to  a  moratorium,  and  to  make  jiossible 
the  first  war  loan,  were  estimated  by  the  London  Economist' 

at  $i.iai.wo.wo. 

The  financial  policy  which  had  been  outlined  by  German 
leaders,  and  which  was  adhered  to  practically  throughout  the 
war,  was  to  finance  the  war  by  means  of  loans  and  paper  money. 
Taxation  was  to  \x  avoided  both  because  of  the  psychological 
effect  which  would  thereby  l)e  created  upon  the  Gennan  people, 
and  because  it  was  unnecessary.  According  to  the  declarations 
of  Karl  Helfferich.  the  Minister  of  Finance,''  taxation  was  not 
tf)  1>e  resorted  to.  as  the  costs  .of  the  war  would  ultimately  be 
paid  out  of  indemnities  collected  from  n  defeated  foe.  The 
financial,  like  the  military,  polic-  was  predicated  upon  a  short 
war  ending  in  a  decisive  victory  and  the  collection  of  a  large 
indenmitv.  The  military  program  was  shattered  at  the  Mame ; 
there  were  also  financial  Marnes  upon  which  the  other  program 
was  to  break. 

Banking  and  Currency,  1914 

Upon  the  outbreak  of  war  the  government  turned  at  once  to 
the  Reichsbank  for  assistance.  Specie  payments  were  suspended 
August  1 .  and  notes  of  the  Bank  made  legal  tender.  At  the  same 
time  the  tax  on  uncovered  excess  note  issues  was  abolished.  The 
Imperial  Bank  was  organized  somewhat  on  the  model  of  Bank  of 
England,  but  with  a  modification  of  the  latter's  rigid  limitation 
of  credit  issues.  The  notes  of  the  Reic'  sbank  were  to  be  covered 
to  one-third  of  their  amount  by  lawful  Germany  money,  imperial 
Treasury  notes,  and  gold  in  bars  or  foreign  coin ;  the  other  two- 
thirds  were  based  upon  discounted  commercial  paper  of  not 
longer  than  ninety  days.  There  was  no  limit  pla  ed  upon  the 
issues,  but  if  they  exceeded  a  certain  amount,  which  varied  ac- 
cording to  the  season  of  the  year,  the  excess  over  and  above 
this  so  called  contingent  was  taxed  at  the  rate  of  5  per  cent  per 
annum.     A  certain  elasticity  was  thus  introduced  into  the  note 

1  October  10.  1914,  p.  590.  ^„,n,c 

-BiitlRct  spiiclus  of  March.  1915.  and  .August  20,  1915. 


GERMANY  '^^ 

issues,  combined  with  protection  against  inflation.     As  the  5 
per  cent  tax  on  the  excess  issues  was  now  removed,  there  w^s 
no  legal  check  upon  the  expansion  of  credit  by  the  Bank.     By 
the  end  of   September  the   Bank  had  discounted  government 
Treasury  notes  to  the  amount  of  $.=587.00O,00O.>    To  facilitate  the 
additional  issue  of  notes,  the  Bank  was  authorized  to  place  the 
Treasury  notes  of  the  government  on  the  same  footmg  as  com- 
mercial'paper  as  cover  for  the  bank  note  issues  which  were  not 
covered  by  gold.     The  gold  in  the  war  chest,  ^n^r^^^^ 
some  $51,000,000.  and  the  silver  amountmg  to  some  $3U.UU0.uuu 
additional,  were  turned  over  to  the  Reichsbank.     The  gold  was 
used  as  the  basis  for  further  issues  of  notes,  while  the  silver 
was  i>aid  out  in  the  form  of  fractional  coin.     In  this  way  the 
government  was  able  to  finance  the  war  until  the  proceeds  from 
the  first  loan  began  to  come  in.     These  were  used  to  liquidate 
part  of  the  indebtedness  of  the  government  to  the  Reichsbank^ 
The  credit  operations  of  the  Bank  and  the  issue  of  additional 
obligations  bv  the  government  undoubtedly  tended  to  inflate  the 
currency      ^s  the  German  people  are  not  accustomed  to  the  use 
of  checks  and  to  deposit  banking,  the  extent  of  this  inflation  may 
be  traced  fairly  accurately  in  the  expansion  of  the  note  issues. 
These  may  be  followed  first  of  all  in  the  returns  of  the  Reichs- 
bank     The   following  statement  shows  the  conditions  of  the 
Bank  on  Julv  23.  the  last  day  before  the  outbreak  of  hostilities, 
and  on  August  15  when  the  first  advances  to  the  government 

were  made:  ..,  ,«,^ 

July  23.  1914  Aug.  15,  1914 

■         J  t,  11-  $422  849000  $397,500,000 

Gold  and  silver  com  and  bullion ifi'aS'soO  31  dSSioOO 

Treasury  notes lo!o26;500  7.958.500 

Notes  of  other  banks 187  723  000  1,106,496,000 

Bills  discounted   12*550000  45,246,000 

Advances   82>04',500  50.155,000 

Investments    ;  5o,io2,000  55,257,500 

Other  securities 

.     Liabilities  472,723.750  970.482.500 

Notes  m  circulation 235  991  000  637,938.500 

Deposits.... 9'9Ol!000  22,566.000 

Other  liabilities  ?,y-i,wv, 

1  O   Schneider.  Die  Kriegsfinanzen  der  Europaischen  Grossmachte,  Schmol- 
lers  Jahrbuch  (1915),  39  Jahrgang,  3  Heft,  p.  266. 


I 
'  '■ 

n 

H 


tl  'II" 

f 


204 


DIRFXT   AND  INDtHF.CT   COSTS  OF  THE  WAK 


t-: 


ill 


It  will  be  seen  that  "bills  discounted"  show  an  increase  from 
about   $187,500,000   on    July    23    to    over    SI.  100.000,000    on 
August  1 3.    This  represents  almost  entirely  Treasury  notes  dis- 
counted by  the  Bank.     The  form  which  these  advances  to  the 
government  took  is  shown  in  the  increase  of  notes  by  $500,- 
000,000  and  to  a  lesser  extent  of  deposits  by  $400,000,000.    On 
September  26,  after  the  first  war  loan  had  become  settled  in 
bank  operations,  deposits,  which  were  largely  increased  by  prep- 
aration for  subscriptions  to  the  first  war  loan,  showed  an  ex- 
pansion to  $678,000,000.    On  the  other  hand,  discounting  opera- 
tions for  private  firms  fell  off  rapidly  from  the  highwater  mark 
of  .August  15,  and  on  September  26  stood  at  $613,500,000,  or 
about  half  of  the  previous  figure.     "The  aggregate  pressure  on 
the  banks  on  August  26 — as  measured  by  the  volume  of  loans, 
discounts,  and  Treasury  bills,  less  deposits — was  $251,000,000."  * 
The  loan  bur     -s  also  contributed  to  the  inflation  by  their 
issue  of  notes,  and  perhaps  to  an  even  greater  degree  in  propor- 
tion to  their  quantity,  because  they  were  issued  in  small  denom- 
inations and  entered  into  the  retail  trade  of  the  country.     By 
September    15   $63,750,000  had  been   issued,   of   which   $35,- 
185,000  were  held  by  the  Reichsbank.  so  that  the  difference  of 
$26,900,000  was  in  circulation.*    As  the  loan  notes  in  the  hands 
of  the  Reichsbank  were  placed  on  the  same  footing  as  the  Treas- 
ury notes — i.e.,  they  could  be  counted  equally  with  gold  as 
cover  for  the  Reichsbank's  own  notes — the  amount  held  by  the 
Reichsbank  really  represented  a  threefold  addition  to  the  cur- 
rency, rather  than  a  proportional  increase.     By  September  30 
the  total  issue  of  loan  notes  had  increased  to  $119,500,000. 
This  increase  was  undoubtedly  due  to  the  demand  on  the  part 
of  intending  subscribers  to  the  first  war  loan.    The  total  opera- 
tions of  the  loan  bureaus  for  the  first  five  months  ending  Decem- 
ber 31.   1914,  amounted  to  $1,175,000,000.     .\  third  form  of 
paper  money  which  went  into  circulation  was  the  Treasury  notes 

'  Speech   of   Herr   Havenstein,   president   if   the    Reichsbank,   Munchener 
y.citunq.  September  30,  1914. 
2  London  Economist.  October  10,  1914.  p.  608. 


iL 


li 


GERMANY 


205 


which  were  issued  directly  by  the  Imperial  Government.  As 
these  were  issued  in  denominations  as  low  as  five  and  ten  marks, 
a  great  many  of  them  went  into  circulation  and  helped  to  inflate 

the  currency. 

In  all  fairness,  however,  these  additions  to  the  currency  can 
not  be  counted  as  pure  inflation.  Gold  had  disappeared  from 
circulation,  having  been  impounded  by  the  Reichsbank.  Much 
of  the  currency,  including  even  the  bank  notes  themselves,  was 
being  hoarded  bv  the  frightened  public.  This  is  shown  by  the 
scarcity  of  smal'l  change  to  meet  which  $75,000,000  in  silver 
coin  was  issued  during  August. 

The  system  of  inconvertible  paper  currency  thus  introduced 
was  planned,  like  the  loan  system,  for  a  short  and  victorious 
war.     But  since  the  war  proved  to  be  neither,  it  led  inevitably 
to  disastrous  consequences  which  showed  themselves  in  ever 
increasing  degree  as  the  years  wore  on.    The  increasing  issues 
of  paper  money  led  to  its  depreciation.     When  specie  payment 
was  first  suspended,  the  bank  notes  were  accepted  by  the  store- 
keepers onlv  at  a  discount.  In  Berlin  the  Military  Governor  de- 
clared that' they  must  be  accepted  at  par,  since  they  were  full 
legal  tender,  and  that  any  ...op  refusing  them  would  be  pun- 
ished by  a  confiscation  of  its  goods.    This  was  met  by  raismg  the 
prices  of  the  goods  and  led  to  further  measures  on  the  part  of 
the  government  each  time  in  the  way  of  price  fixing.    The  efforts 
of  the  government  to  prevent  the  working  out  of  the  mevitable 
economic  consequences  of  inflation  of  the  currency  remind  one 
vividly  of  the  experiences  of  the  American  Confederation  with 
the  continental  paper  money,  and  of  the  French  Revolution  with 
its  assignats. 

Expenditures,  1914 

The  expenditures  of  the  government  for  war  purposes  are  very 
difficult  to  follow,  as  the  budgetary  machinery  broke  down  en- 
tirely during  .ae  crisis.  During  the  war  no  itemized  budget  was 
presented  to  the  Reichstag,  and  no  statement  of  expenditures  has 
been  published.     Parliament  was  asked  to  vote  sums  of  money 


il 


i 


m 


«i- 


«; 


2()6  DIKKCT   AXD  INDIKECT  COSTS  OF  TIIK   WAK 

,.„  /,/„f_vntes  of  credit — l)Ut  the  exi»en(liture  of  these  sums  was 
entirely  in  the  discretion  of  the  Fixeciitive.  The  votes  of  credit 
afford,  however,  the  l)est  measure  which  we  have  f()r  gauging  the 
cost  of  tlie  war  to  Germany,  since  no  money  could  lie  exi)ended 
unless  it  had  l)een  appropriated  by  the  usual  parliamentary  pro- 
cedure. Although  most  things  financial  are  concealed,  it  has 
i>een  imiwssihle  to  cover  the  growing  exi)enditures  as  they  have 
l)een  met  by  votes  of  credit.  During  the  five  months  ending 
IX'cenil)er  31.  l'J14,  the  following  votes  of  credit  were  granted: 

.        ,  -   ,Q,.  $1,250,000,000 

.\«K..s    4.  1914       • ^550.000.000 

December  Z,   1914 _2 _. 

$2,500,000,000 

Prewar  expenditure  had  exi^erienced  a  steady  rise,  owing  to  the 
enlargement  of  the  army,  expenditure  for  which  had  grown  from 
$155.63O,0a'>  as  the  average  of  the  ten  years  ending  with  the 
fiscal  year  1904.  to  $194,133,000  as  the  average  of  the  ten  year 
l>eri(xi  ending  March  31.  1914;  and  to  the  expansion  of  the  navy, 
the  average  expenditure  for  which  grew  from  $36,655,000  to 
$88,065,000  annually  for  the  same  two  ijeriods.'  Expenditures 
for  other  items  of  the  budget  had  not  increased  in  anything  like 
the  same  proportion.  The  exi^enditures  of  the  government  for 
the  last  year  of  peace  may  be  seen  in  the  budget  statement  for 
the  fiscal  year  ending  March  31.  1914.  as  follows: 

.                                                                         $369,165,000 

Q™>    [[\]\'.\\\^'.\\\'.'.'.'.'.\'.'.'. 120,065,000 

belH  service"  ■.■.'.■.■.■. '.■.■.  ■.'.■.  ■.■.■.  ;■.■.■.  ■.::...■. ^^'^'Soo 

Other  expenditure  374.5».'»,m^i 

$924,705,000 

When  it  is  remembered  that  this  heavy  expenditure  on  army  and 
navy  in  prewar  years  had  placed  Germany  in  a  more  favorable 
situation. from  a  war  finance  viewpoint  on  the  outbreak  of  war, 
the  appropriation  of  $2,500,000,000  will  afford  comprehension 
of  war  costs  for  the  first  five  months  of  war. 

1  Statist,  September  26,  1914,  p.  640. 


GERMANY 


207 


BoRRowixr.s,  1914 


Ciemian  loans,  like  everything  else  in  the  war.  had  Ijeen  ar- 
ranged lie  forehand  in  pursuance  of  a  methodically  planned  pro- 
gram    With  almost  clocklike  regulr.-ity.  they  were  issued  every 
six  months,  generallv  in  September  and  March.    The  pros,K:ctus 
of  the  first  war  loan  appeared  on  September  9  in  some  280  news- 
papers    It  was  offered  in  two  forms:  (a)  Treasury  notes  run- 
ning for  five  years  to  an  amount  of  $250,000,000.  and  (b)  an 
unlimited  issue  of  l>onds  running  for  ten  years.  Both  issues  bore 
5  ,wr  cent,  and  were  issued  at  97.3.     In  order  to  bring  them 
within  the  reach  even  of  the  humblest  buyer,  ^hey  \xere  issued 
in  denominations  as  low  as  100  marks  ($25).    The  loan  wa?  un- 
questionably  a    success,    subscriptions    amounting   to   $1,220.- 
250.000.    Dr.  Helfferich.  then  a  director  of  the  Deutsche  Bank, 
declared  the  amount  subscribed  was  twice  as  large  as  had  been 
expected,  and  that  the  proceeds  would  meet  the  needs  of  the  gov- 
ernment until  the  end  of  the  fiscal  year.    The  government  was 
able  with  the  proceeds  of  this  loan  to  reduce  from  $1,190,000.0)0 
to  $660,000,000  the  Treasury  bills  which  had  been  discounted  by 
the  Reichsbank  and  its  other  short  term  obligations.     But  the 
war  expenditures  were  increasing  so  rapidly  that  the  remainder 
lasted  only  until  December,  when  the  government  was  forced 
to  resort  to  new  issues  of  Treasury  bills,  and  to  loans  from  the 
Reichsbank. 

The  success  of  the  loan  was  attributable  in  part  to  the  large  sub- 
scriptions by  banks,  industrial  companies,  and  state  insurance 
organizations,  but  at  the  same  time,  as  shown  by  the  published  re- 
turns, the  number  of  small  subscribers  was  considerable.  There 
is  no  doubt  that  the  loan  bureaus,  by  making  loans  on  unmarket- 
able securities  and  other  assets,  greatly  facilitated  borrowing  nnd 
made  the  purchase  of  war  bonds  easy  for  the  small  investor. 

The  amount  of  the  first  war  loan  had  been  pretty  well  used  up 
in  advance  by  loans  from  the  Bank  and  other  short  term  obliga- 
tions, so  that  the  proceeds  thereof  were  applied  to  the  funding 
of  outstanding  obligations.    The  ^var  expenditures  of  the  next 


208 


DIKKLT   AND   INIMKECT   COSTS  OF  THE   WAR 


I  .\ 


six  months  were  again  met  by  the  sale  of  short  term  Treasury 
bills,  chiefly  to  the  Reichsbank  and  other  large  banking  institu- 
tions. 

In  February,  1915,  a  second  war  loan  was  made  for  the  pur- 
pose of  funding  this  floating  debt  and  to  provide  additional  sums. 
This  second  loan  consisted  of  5  per  cent  Imperial  bonds  due  in 
1924,  and  Treasury'  bonds  redeemable  in  1921  and  1922,  both 
forms  being  issued  at  98.5.  The  number  of  subscribers  was 
2,694,063,  and  the  aggregate  subscriptions  totaled  $2,276,- 
500,000,  both  the  number  of  subscribers  and  the  total  subscrip- 
tions being  about  double  those  of  the  first  loan.  .\n  interesting 
sidelight  is  thrown  on  the  transactions  in  war  loans  by  a  pro- 
vision in  the  law  that  any  subscriber  who  would  agree  not  to  sell 
his  war  lx)nds  before  .\pril  15,  1916.  could  obtain  the  same  at 
98.30.  It  does  not  appear  from  the  published  financial  state- 
ments to  what  extent  advantage  was  taken  of  this  ofTer.  More- 
over, it  is  interesting  to  note  &  *  while  Dr.  Havenstein,  President 
of  the  Reichsbank,  in  an  address  on  the  first  war  loan,  boasted  of 
a  "glorious  victory,"  Dr.  Delbriick  at  the  time  of  the  second  loan 
was  content  to  refer  to  "an  honorable  peace"  which  would  "atone 
for  all  sacrifice."  In  coirmienting  upon  the  loans,  the  Amster- 
dam correspondent  of  the  Economist '  (London)  stated  that  the 
subscriptions,  so  far  as  paid  in  cash,  represented  the  conversion 
of  foreign  securities  and  not  an  investment  of  war  profits  or  the 
employment  of  idle  money.  In  April  Germany  made  her  ont 
public  attempt  to  borrow  abroad,  by  offering  a  loan  of  $10.- 
000,000  in  the  United  States.  Its  success  was  not  great  enough 
to  encourage  her  to  repeat  the  performance,  however. 


Hi 


PIXPKNDITURES,    1915-16 

Although  the  government  did  not  publish  statistics  of  its  war 
expenditures  during  the  war,  illuminating  sidelights  may  be  ob- 
taine<l  from  the  speeches  of  the  Minister  of  Finance  when  he  ap- 
jjeared  before  the  Reichstag  to  request  votes  of  credit.     During 

'  March  27,  1915,  p.  753. 


r.ERMANY 


209 


the  first  six  months  of  the  war  Herr  Kuhn  was  Minister  of 
Finance.  He  was  succeeded  on  January  31.  1915,  by  Dr.  Karl 
Helfferich.  This  appointment  was  a  popular  as  well  as  appro- 
priate one.  The  new  Minister  had  both  scholarly  training  and 
practical  experience,  having'  been  university  lecturer,  legation 
councilor,  railway  director,  and  bank  director.  He  was  also  the 
author  of  important  texts  on  the  subject  of  money  and  banking. 
In  a  speech  before  the  Reichstag  on  March  10,  1915,  Dr. 
Helfferich  proclaimed  his  financial  policy : 

"The  means  of  financing  a  modem  war  are  substantially 
the  following:  First,  the  issue  of  loans;  second,  the  use  of 
the  printing  press  for  the  issue  of  notes  and  paper  money; 
third,  a  reduction  of  expenses  and  war  taxation." 

All  of  these  means  were  being  employed  by  the  government  ex- 
cept that  of  taxation,  and  this  was  not  to  be  imposed,  because,  as 
he  said,  "we  have  a  firm  hope  that  after  the  conclusion  of  peace, 
we  shall  present  to  our  opponents  a  bill  for  the  expenses  of  the 
war  forced  upon  us."  The  total  budget  presented  to  the  Reichs- 
tag called  for  an  expenditure  of  $3,250,000,000. 

Meantime  war  expenditures  were  increasing  rapidly  and  at  the 
same  tinve  revenues  were  declining.  The  $2,500,000,000  votes  of 
credit  of  1914  were  exhausted,  and  in  March,  1915,  the  Minister 
appeared  before  the  Reichstag  to  ask  for  a  new  vote  of  credit  for 
$2,500,000,000,  and  again  in  August,  1915,  for  a  like  amount. 
He  stated  that  monthly  expenditures  were  nearly  $500,000,000 
—"the  expenditures  of  a  single  month  thus  exceeded  by  one-third 
the  total  expenditure  of  the  war  of  1870-71." 

"Let  us  have  no  illusion  as  to  the  magnitude  of  the  effort 
or  the  burden  of  the  sacrifice  still  to  be  made  .  .  .  the 
twenty  milliards  voted  up  to  date  represent  roughly  the  total 
value  of  the  entire  German  railway  system,  including  all 
stations,  lines,  rolling  stock,  etc.  Although  our  monthly 
war  expenditure  had  risen  to  vast  proportions  by  March, 
our  estimates  have  been  exceeded  by  the  actual  development 
of  war  expenditure.     .     .     ." 


'M 


210 


DIRECT  AND  INDIRECT  COSTS  OF  THE  WAR 


II     ■" 


i  !      > 


To  meet  these  \ast  sums.  Dr.  Helfferich  asked  a  new  vote  of 
credit  and  the  authorization  of  a  third  li>an.  Taxation  was  re- 
jected. The  amount  secured  by  the  first  two  loans  (some  $3,4/5.- 
000,000)  had  already  been  exhausted  and  further  sums  had  been 
borrowed  from  the  Reichsbank  and  the  private  banks  by  the  dis- 
counting of  Treasury  bills,  which  then  st(xxl  at  $1,867,700,000. 
It  was  necessary  to  refund  these,  and  also  to  secure  as  much  new 
money  as  possible,  .\ccordingly,  a  vote  of  credit  for  $2,5CO,- 
aX),obo  was  asked  for  and  voted  in  August.  1915. 

In  his  speech  urging  this  vote.  Dr.  Helfferich  commented  upon 
the  fact  that  all  of  the  moneys  used  for  the  war  had  been  spent 
within  the  country,  and  thus  had  created  new  capital.  One  can 
not  help  a  feeling  of  surprise  that  so  good  an  economist  and 
practical  financier  should  have  lent  himself  to  the  promulgation 
of  such  an  economic  fallacy.  This  point,  however,  recurs  fre- 
quently in  German  comment  on  war  finance,  and  seems  to  have 
played  its  part  in  convincing  the  people  of  the  desirability  of  sub- 
scribing to  the  war  loans.  Probably  the  Finance  Minister  let 
jjolitical  exiwdiency  in  this  case,  as  in  so  many  others,  overbalance 
considerations  of  truth. 

The  sum  thus  voted,  together  with  the  proceeds  of  the  third 
loan  in  September,  was  sufficient  to  meet  the  expenditures  until 
December,  when  Dr.  Helfferich  again  appeared  before  the 
Reichstag  and  asked  for  another  vote  of  credit  for  $2,500,- 
000,000.  Although  the  cost  had  been  increasing,  he  said,  "we 
have  succeeded  in  keeping  within  relatively  narrow  bounds  in- 
creases in  the  monthly  cost  of  the  war."  He  reckoned  that  the 
money  now  granted  would  last  until  the  end  of  the  fiscal  year. 
The  votes  of  credit  now  aggregated  $10,000,000,000. 


W^ 


Borrowings.  1915-16 

The  third  war  loan  was  issued  in  September,  1915.  It  con- 
sisted of  a  5  iKjr  cent  bond  due  in  1924,  issued  at  99,  payment  of 
sul>scriptions  being  spread  over  six  months  in  instalments.  The 
trend  of  war  borrowing  at  the  time  of  the  third  loan  is  gleaned 


y — >r 


GERM AN Y 


211 


from  the  following  excerpt  from  a  leading  German  newspaper' 
which  stood  close  to  the  government,  explaining  how  it  could 
be  done,  not  only  for  the  third  loan,  but  for  subsequent  loans: 

"It  is  not  necessary  that  one  shall  have  actual  gold  or  sil- 
ver and  anyone  possessing  anything  can  participate,  whether 
they  have  ready  cash  or  not.  If  you  have  money  m  the 
bank,  simply  withdraw  it  for  the  purpose  of  subscnbtng ;  m 
the  case  of  large  amounts,  a  certain  period  of  notice  has  to 
be  given  to  the  bank,  although  when  it  is  not  a  question  of  a 
big  sum  the  banks  are  generally  willing  to  repay  without  the 
requisite  notice  being  given.  You  should  therefore  at  once 
inquire  at  the^bank  where  your  money  is  deposited. 

"If  you  hold  securities  you  will  find  it  easier  still  to  raise 
money.  It  is  not  necessary  to  sell  them ;  you  simply  borrow 
money  against  them  at  any  Reichsbank-Darlehnskasse  or  at 
anv  large  bank,  and  as  you  will  receive  almost  as  much  in- 
terest on  the  war  loan  stock,  or  even  more  interest  than  you 
pay  to  the  lending  bank,  you  will  be  nothing  out  of  pocket. 
You  must,  however,  hand  over  to  the  bank  the  securities 
against  which  the  money  is  advanced  to  you.  and  the  bank 
will  return  them  when  the  loan  is  paid.  No  loss  can  ensue 
from  the  above  mentioned  procedure,  or  at  the  most,  it  could 
only  be  li  per  cent  per  annum  in  the  interest,  if  as  is  the 
case  with  the  'Reichs-Darlehnskassen'  you  pay  5%  per  cent 
interest  on  the  borrowed  money  whilst  you  receive  5  per  cent 
on  the  war  loan  stock;  and  even  this  possible  loss  will  sub- 
sequently be  made  good  in  view  of  the  fact  that  you  monly 
99  marks  for  each  100  marks  of  war  loan  stock,  which  lUU 
marks  will  be  repaid  in  full.     ... 

"If  you  have  already  subscribed  to  the  first  or  second  war 
loan  and  paid  in  full  for  the  same,  you  can  at  once  participate 
in  the  present  issue.  All  you  need  to  do  is  to  take  your 
stock— or.  if  you  have  not  yet  received  the  stock,  the  receipt 
for  the  amount  paid— to  a  bank  which  will  advance  you  75 
per  cent  of  the  nominal  value,  so  that,  if  you  have  M  400 
($100)  old  war  loan  vou  can  subscribe  M  300  m  the  new 
issue  without  paying  a  single  P^ f"n>g'  >?"  ^^^  ^" 
subscribe  four  times  this  amount,  i.  e.,  M   1.600   (,S4W) 

1  Kolnische  Zeitung.  No.  891.  September  2.  191S. 


m\ 


212  DIRF.CT  AND  INDIRECT  CO«TS  OF  THE  WAR 

if  you  will  also  leave  with  the  bank  the  stixk  that  you  take 
in  the  new  loan,  in  which  cast  you  will  have  given  the  bank 
as  security  M  400  of  the  old  war  loan  and  M  1 ,200  of  the 
new  war  loan,  together  M  1 .600  against  a  loan  of  M  1 ,200." 

Subscriptions  to  the  third  loan  amounted  to  $3,040,000,000 
from  3,966,418  subscribers.  This  was  by  far  the  most  successful 
of  the  loans  thus  far  issued  and  was  without  doubt  affected  favor- 
ably by  the  success  of  the  Russir  campaign.  Indeed,  there  is 
reason  to  lielieve  that  in  more  than  one  instance  military  opera- 
tions were  so  directed  as  to  secure  a  more  or  less  real  victory  at 
the  psychological  moment  during  the  flotation  of  the  loans.  In 
respects  other  than  amount,  this  loan  was  successful,  .nnd  seemed 
to  vindicate  the  German  jiolicy  of  financing  the  war.  The  ammmt 
of  each  loan  paid  when  the  first  instalment  fell  due  was  as 
follows : 

First  loan  $642,000,000  or  57  per  cent 

Second  lo.-»n      1,511.250.000  or  67  per  cent 

Third  loan  2.183,000.000  or  72  per  cent 

In  resi)ect  also  of  the  dependence  placed  upon  the  loan  bureaus, 
there  was  to  be  noted  a  progressive  improvement.  In  the  case 
of  the  first  loan  27.6  per  cent  of  the  first  instalment  had  been  paid 
by  means  of  ban  bureaus.  In  the  second  this  proportion  had 
fo:!-ri  to  8.0  per  cent,  but  in  the  third  loan  only  4.7  per  cent  of 
the  initial  payments  represent  borrowings  at  loan  bureaus.  It  was 
estimated  that  the  money  which  went  into  these  loans  was  de- 
rived from  at  least  five  sources — (1)  money  previously  used  to 
finance  foreign  trade;  (2)  money  fonnerly  used  in  speculation  on 
the  stock  exchanges;  (3)  profits  from  manufactured  goods  in 
storage  sold  at  enhanced  prices;  (4)  money  actually  saved 
through  rigid  economy;  (5)  money  obtained  from  the  sale  of 
foreign  securities  in  Amsterdam  and  other  neutral  markets.*  It 
was  estimated  that  about  $300,000,000  in  American  securities 
were  sold  and  converted  into  war  loans.    By  the  end  of  1915  the 

'  Hiciwmist  (London),  December  25,  1915. 


r.ERMANV 


213 


(ierman  debt  had  grown  to  $5,985,500,000.    This  was  'an  enor- 
mous increase  from  the  modest  prewar  debt  of  $1,250,000,000,' 

Taxation,  1915-16 
ll  we  now  turn  from  loans  to  taxes,  the  showing  made  by  the 
govenmient  pohcy  is  not  so  good.     The  receipts  from  revenue 
sources  at  the  end  of  the  fiscal  year  March  31,  1915,  had  turned 
out  rather  better  than  had  been  expected,  and  instead  of  an  an- 
ticipated surplus  of  $9,500,000.  one  of  $56,750,000  was  an- 
nounced by  Dr.  HelfTerich.    Sach  an  increase  in  the  surplus  of 
revenues  over  expenditure  might  normally  result  either  from  an 
unexpected  growth  of  income  or  a  decrease  in  outgo.    But  owmg 
to  the  almost  complete  interruption  of  foreign  trade  the  receipts 
from  customs  duties,  which  amounted  to  $208,328,650  in  1913. 
had  declined  greatly,  as  had  also  most  of  the  other  sources  of 
revenue.    The  surplus  must  have  come,  it  would  seem,  from  in- 
creased economies— an  extraordinary  achievement  in  war  time. 
If  the  truth  be  told,  however,  the  surplus  was  arrived  at  in  quite 
another  fashion.    The  budget  spoken  of  by  Dr.  Helflferich  was 
the  civil  budget  which  was  sharply  distinguished  from  the  mil- 
itary budget.     The  latter  was  to  be  met  solely  by  loans,  the 
former  was  to  be  met  by  existing  taxes  and  other  sources  of 
revenue,  so  long  as  it  balanced.    Only  in  event  of  a  deficit  would 
any  new  taxes  be  imposed.    A  deficit  in  the  civil  budget,  however, 
was  prevented  only  by  transferring  the  whole  of  the  military  and 
naval  outlay  (amounting  in  1913-1914  to  $489,230,000)  from 
the  ordinan-  civil  budget  to  the  extraordinary  war  budget.     In 
this  way  not  only  was  a  deficit  prevented,  but  it  was  possible  to 

Md  the  r«ular  reissue  of  the  maturing  bills,  the  difference  between  these 

^lUtionT^d  the  funded  debt  was  "-<>«  oV.'„"«tmO  MO     F  W  R  Zi,^ 
the  budget  of  1913.  the  floating  debt  amounted  to  $55,000,000.    F.  W.  K.  /.mi 

mcrmann.  he.  til-.  !>•  64. 


214 


DIKKCT  AND  INDIRECT  COSTS  OF  THE   WAR 


if!: 


i#  « 


announce  a  respectable  surplus  for  the  year.     It  need  hardly  lie 
said,  however,  that  this  surplus  was  purely  nominal. 

Heavier  taxation,  it  must  he  said,  was  already  l)ein,y;  imposed 
by  the  local  jjovenmients  and  by  the  individual  states.  In  these 
the  main  source  of  revenue  was  direct  taxes,  consisting  generally 
of  an  income  tax,  together  with  various  proi>erty  t'.xes.'  The 
preemption  by  the  states  of  the  field  of  direct  taxai  on  made  it 
difficult  for  the  Imperial  Government,  which  was  li  itcd  to  in- 
direct taxation  for  the  most  part,  to  increase  its  tax  re.  .nucs  even 
had  it  desired  to  do  so.  The  attitude  of  the  Imperial  Government 
on  this  point  is  well  stated  in  the  speech  of  Dr.  Helfiferich  before 
the  Reichstag  on  August  20,  1915  : 

"...  I  explained  in  March  the  reasons  which  deter- 
mined the  United  Government  against  the  imposition  of  war 
taxes  during  the  period  of  the  war.  These  reasons  still 
stand.  We  do  not  desire  to  increase  by  taxation  the  heavy 
burden  which  war  casts  upon  our  people  so  long  as  it  is  not 
absolutely  necessary,  rieavy  taxes  on  consumption  or  in- 
creased transit  dues  \»oulcI,  with  prices  at  their  present  level, 
be  neither  reasonable  nor  desirable.  Direct  taxation,  apart 
from  any  question  of  principle,  is  already  being  levied  under 
pressure  of  war  necessity  at  an  increased  rate  by  the  com- 
m.unes  and  to  some  extent  by  the  individual  states.  These 
reasons  are  the  more  forceful  that  the  yield  of  taxation  at 
the  best  could  meet  only  a  very  small  portion  of  the  vast  total 
of  war  expenditure. 

"In  thih  connection  you  will  doubtless  expect  me  to  say 
st)mething  about  the  much  discussed  taxation  of  war  profits. 
Such  taxation  should  not  be  made  until  after  the 
conclusion  of  the  war.  ...  As  things  are.  the  onlj' 
method  seems  to  be  to  leave  the  settlement  of  the  war  bill  to 
tlie  conclusion  of  peace  and  the  time  after  peace  has  been 
concluded.  And  on  this  I  would  say:  If  God  grants  us  vic- 
tory, and  with  it  the  possibility  of  moulding  peace  to  suit  our 
needs,  we  neither  can  nor  will  forget  the  question  of  costs. 
We  owe  that  to  the  future  of  our  people.     .     .     .     Those 

iGeorg  Schanz,  Die  in  den  deutschen  Bundesstaaten  direktin  Sieuersys- 
teme,  Finanz-Archiv  (1914),  31:  236. 


GERM      fY  215 

who  piovoked  the  war,  and  not  we,  desen'e  to  drag  through 
the  centuries  to  come  the   leaden  weight   of   these  mil- 
liards.    .     .     •" 
The  budget  estimates  for  1914-15  and  1915-16,  together  with 
the  actual  receipts  for  1914,  are  given  in  the  following  table,^  and 
it  is  safe  to  assume,  inasmuch  as  the  actual  receipts  have  never 
been  published,  that  the  estimates  are  more  favorable: 

e,^„e  1913-14  1914-15  1915-16 

I^.,          u  $208  328650  $220,321,625  $220,392,375 

Post  and  telegraph ^935  700  3  47U50  3,471,250 

Prmt.ng  office  3.935  700  ^4/^^^  ^^^^^ 

Railroads    ...^^ 22;891400  20,490,250  19,955,675 

Various  receipts  1^  MO  450  178,232,500  178,232,500 

Taxation :  Customs   2'8S3;750  2.7l9  000  2719,000 

?°jf=/°    10674,825  9,800.500  9,800.500 

i^«\7"" ;::::::     a3i36425    4o;8i3.ooo    40,813,000 

It    ...         15  596,575         15,286,000         1^86.000 

?**.;; 48443,675         48,498,750         48,498,750 

l^,:::::::::::::;      ^'g^      »|»     ,S 
E  ■  ■ :    "S    ^'IS    "iSiS! 

Stimo  tax  -n' bills....  4,903,875  4,775,000  4,775,000 

S»  (generul)   ....  58.758,625  62,521,250  66.021.250 

lnc«SL:ntUx 3,830,725  25,000  25,000 

InSnce      .            ..  11589.200  12.500,000  12,500,000 

MUcellaneous             ..  521^  479,750  479,750 

Contributions  for  defense  205,150  98,455,225  81,935,225 

SSns  from  thrstate    ...  12,985,200  12.985,200  12.985,200 

MUcelKus           .. ...       ::...  95788,825  34.688,825  26,148.400 

Total $798,599,850     $851,294,600     $829,270,125 

Banking  and  Currency,  1916-17 

The  year  1916  saw  no  change  in  the  financial  policy  of  the 
Gennan  Government.  W'ar  expenditures  were  still  to  be  niet 
by  means  of  loans,  the  inflation  of  the  currc'%  still  contmued. 
and  while  new  taxation  was  introduced,  it  v  ot  sufficient  even 
to  meet  the  intei  est  on  the  new  war  loans.  '1  ne  amount  of  bank 
notes  in  circulation  showed  a  steady  increase;  the  average  for 
1914  had  been  $729,500,000;  in  1915  it  was  $1,352,250,000;  but 

1  StatMschcs  Jahrbuch  fur  das  Dmtsche  Reich.  1915,  pp.  347-348. 


j.iil 


I  :; 


"Si 


!U> 


DIRIX  1    AND  INDIRECT  COSTS  OF  THE  WAR 


for  1916  it  was  $1,717,750,000.  By  the  end  of  the  year  (Decem- 
ber 30)  the  note  circulation  had  reached  tlie  record  point  of 
$2,013,500,000.  .\t  the  same  time  the  anK  int  of  loan  notes 
in  circulation  showed  an  equally  steady  expansion,  though  con- 
siderably less  in  amount.  The  amount  of  these  had  increased 
from  $263,000,000  at  the  end  of  191 5  to  $718,250,000  at  the  end 
of  1916.  The  t(5tal  notes  in  circulation  on  July  2i  of  each  year 
were  as  fallows : 

(In  million  dollars) 

Notes  1914  1915  1916 

Reichsbank  notes  473  1328.5  1710 

Treasury  notes  34.5  72  343 

Loan  notes  174.5  404 

The  effect  of  this  great  expansion  in  the  circulating  medium 
was  clearly  .seen  in  rising  prices  and  in  the  depreciation  of  the 
mark.  Exchange  on  every  neutral  market  had  risen  against 
Gennany,  as  shown  in  the  following  table: 

Rate  early 

Exchange  Par  in  Dec,  191-1 

Swiss  rate  80  90.5 

Dutch    170  19025 

Scandinavian   112.5  1 18 

Italian   »  87.28 

New  Vork  '♦.20  4.70 

The  price  of  living,  as  shown  by  the  report  of  Richard  Calwer. 
had  increased  in  the  thirteen  months  of  war  48.7  per  cent,  whereas 
Berlin,  taken  by  itself,  showed  an  increase  of  56  per  cent  between 
August  1,  1914,  and  August  1,  1915.  The  Statistische  Corres- 
pondent for  September,  1915,  shows  that  foodstuffs  had  in- 
creased from  a  level  of  100  in  July,  1914.  to  169.6  in  August. 
1915. 

By  the  end  of  1915  the  mark  was  at  a  discount  of  about  2^ 
per  cent  in  neutral  markets.  .Mthough  foreign  exchange  had 
been  left  free  up  to  this  time,  the  government  now  determined 
to  place  it  under  the  control  of  the  Reichsbank.  Notes,  drafts 
or  negotiable  securities  sent  into  Germany  in  payment  of  exported 
merchandise  could  \k  negotiated  only  through  the  Reichsbank 


M 


:  ! 


;i:il 


GERMANV 


21; 


or  one  of  the  private  banks  authorized  to  handle  foreign  ex- 
change. This  regulation  had  but  slight  effect  in  improving  the 
condition  of  the  mark,  as  it  was  limited  to  payments  for  mer- 
chandise exported  and  sales  of  securities  were  still  left  free. 
Moreover,  as  Germany  was  exix)rting  but  little  merchandise  it 
became  necessary  to  ship  German  gold  and  securities  out  of  the 
countr>-.  with  the  result  of  a  still  further  decline  in  the  quotation 
of  the  mark. 

The  German  banks  were  being  placed  more  and  more  at  the 
ervice  of  the  government.  With  the  exhaustion  of  supplies  of 
raw  material  an4  the  curtailment  of  many  lines  of  production,  the 
demands  of  private  industry  for  accommodation  at  the  banks  fell 
off.  This  is  illustrated  by  the  decline  in  the  note  issues  of  the 
loan  bureaus.  On  the  other  hand,  the  expenditures  and  loans 
of  the  Imperial  Government  were  increasing  in  ever  greater  de- 
gree. The  resources  of  the  banks  were  consequently  absorbed  in 
satisfying  the  needs  of  the  government  and  in  financing  war  con- 
-acts.  This  was  true  of  the  private  banks  as  well  as  of  the  Im- 
;rial  Bank.  They  found  their  reward  in  expanded  business  and 
largely  increased  profits.  Indeed,  banking  institutions  invariably 
reap  a  harvest  in  a  time  of  depreciated  currency,  and  this  wa:- 
r  wing  true  of  the  German  banks  at  this  time.  The  average 
dividends  of  the  five  large  Berlin  banks  other  than  the  Reichs- 
bank  increased  from  7.4  per  cent  in  1915  to  8.6  per  cent  in  1916, 
while  their  undivided  profits  showed  an  even  greater  growth. 
This  prosperity  was  more  apparent  than  real,  however,  for  it 
really  represented  a  waste  of  national  wealth,  although  it  in- 
volved an  enonnous  money  turnover. 

In  pursuance  of  the  policy  already  adverted  to,  of  concen- 
trating the  gold  reserve  of  the  country  in  the  possession  of  the 
Reichsbank.  a  noteworthy  effort  was  made  this  year  to  increase 
the  gold  holdings.  These  had  averaged  $429,000,000  in  1914; 
$601,250,000  in  T915;  and  $640,000,000  in  1916  Systematic 
efforts  were  now  made  to  increase  the  gold  fund  in  the  Reichs- 
bank. People  were  urged  to  exchange  gold  coin,  ornaments  and 
other  articles  of  gold  for  bank  notes  as  a  patriotic  duty.    A  re- 


218 


DIKKCT   AND  IXDIKECT  COSTS  OF  THE  WAR 


markable  '•t^ponse  was  made  to  the  apical  and  by  this  means  the 
gold  s  if  the  Reichsbank  was  increased  by  ?317,000,000.    It 

has  bt  .  i-timated  that  the  total  gold  coined  in  the  Empire,  le3S 
withdrawals,  down  to  March  31,  1915,  amounted  to  $1,285,- 
250,000.  If  these  tigiires  are  approximately  correct,  it  would 
seem  that  the  German  people,  in  spite  of  the  appeals  to  their 
patriotism,  were  still  keeping  about  $300,000,000  in  hiding. 

F".XP<iNDITURES.  1916-17 

Thanks  to  the  large  appropriations  of  the  previous  year,  only 
two  votes  of  credit  had  to  be  made  for  1916.  These  were  voted 
on  June  9  and  October  30,  and  were  each  for  $3,000,000,000. 
In  his  budget  speech  of  March  16,  1916,  Dr.  Helfferich  was  com- 
pelled to  admit  that  even  the  formal  balance  in  the  civil  budget 
could  no  longer  be  maintained.  A  falling  off  of  over  $36,- 
000,000  in  receipts,  and  an  increase  of  over  $83,750,000  in  ex- 
penditures, gave  a  deficit  of  $120,000,000.  In  spite  of  drastic 
economy  in  civil  expenditures,  the  interest  charges  had  grown 
so  rapidly  and  by  such  enormous  amounts  that  this  increasing 
burden  could  no  longer  be  met  from  the  old  sources  of  revenue. 
"The  service  of  the  imperial  debt  for  1916,"  said  the  Finance 
Minister,  '"takes  $575,750,000  against  $317,000,000  in  1915,  and 
$62,500,000  in  the  last  peace  biidget."  But  not  merely  were  the 
debt  charges  increasing ;  otV'c.  expenditures,  too,  which  grew  out 
of  the  war  were  mounting  up  in  alarming  fashion.  Owing 
to  the  rising  cost  of  living,  the  government  was  compelled  to  in- 
crease the  imperial  allowance  payable  to  soldiers"  dependents  to 
$5  a  month  for  a  wife  and  $2.50  for  other  dependents.'  When 
the  war  broke  out  this  allowance  had  been  from  $1.50  to  $1.75 
a  month  to  the  wife,  and  $1  for  other  dependents.  In  other 
respects,  too,  the  government  was  paying  more  for  services  and 
supplies.  The  easy  method  of  financing  the  war  by  means  of  in- 
flation was  beginning  to  react  on  the  government  fisc. 

^Economist  (London),  December  23,  1916,  p.  1179. 


CERMANY 


219 


Borrowings,  1916-1" 
Two  loans  were  eliecied  during  the  year  1916  in  accordance 
with  the  loan  program— the  fourth  war  loan  was  issued  in  March 
and  consisted  of  (a)  5  per  cent  imperial  loan  at  98.5  payable  in 
1924.  and  (b)  4K'  I>er  cent  Treasury  notes  redeemable  from  1923 
to  1932  issued  at  95.  The  subscriptions  to  this  loan  amounted  to 
52.692,000,000  and  the  number  of  individual  subscriptions  was 
stated  to  have  been  5,279,645— the  largest  number  yet  noted. 
The  loan  was  made  payable  in  four  instalments,  and  when  the 
first  instalment  was  due  77.2  per  cent  of  the  amount  was  paid  in. 
The  proportion  obtained  by  loans  from  the  loan  bureaus  was  only 

.6  per  cent. 

In  September  the  fifth  loan  was  brought  out.    It  consisted  of 

(a)  imperial  5  per  cent  bonds  redeemable  in  1924  issued  at  98, 

(b)  4>4  per  cent  Treasury  notes  on  the  same  terms  as  those^of 
the  last  loan.  The  returns  from  this  loan  amounted  to  $2,674,- 
750,000.  The  proposition  was  made  and  discussed  in  the  press 
for'lotterv  premiums  of  one-half  to  one  per  cent  in  connection 
with  the  fifth  war  loan,  in  order  to  make  its  flotation  easier.' 
This  was  not,  however,  found  necessary.  The  loan  showed  a 
slight  increase  over  that  of  the  preceding  March,  but  the  number 
of  subscribers  declined  by  over  1,400,000,  indicating  that  the  loan 
had  been  taken  principally  by  banks  and  institutions  and  wealthy 
individuals. 

Taxation,  1916-17 

In  his  budget  speech  of  March  16,  1916,  Secretary  Helflferith 
had  spoken  of  the  impossibility  of  balancing  the  budget  without 
new  revenue.  He  consequently  asked  for  new  taxes.  These 
were  \ery  slight,  however,  and  were  designed  to  do  no  more  than 
to  meet  the  additional  interest  charges  of  the  war  debt.  To 
meet  the  deficit  which  had  arisen,  he  proposed  new  or  additional 
taxes  on  war  profits,  tobacco  and  cigarettes,  bills  of  lading,  and 
receipts,  and  increased  postal,  telegraph  and  telephone  rates. 
The  estimated  yield  from  these  taxes  was  $125,000,000  but  the 

1  Berliner  Tageblatt,  February  22,  1916. 


i 


: 

s  ; 


i20 


OIKIU  T    AND   INDIkKCI    (dSTS  OK    UIK    V\  AK 


■;«! 


actual  yield  has  l)eeti  kept  a  secret,  as  has  l)een  every  vital  fact 
connected  with  German  war  finance.  The  Reichstag  passed  the 
tax  liiil  with  some  amendments.  The  provision  defining  the  in- 
creased incomes  of  private  persf>ns  as  "war  profits"  was  stricken 
from  the  war  profits  tax  bill.  The  proposal  for  a  universal  re- 
ceipts tax  was  rejected,  and  a  tax  on  the  yearly  sales  of  goods 
was  substituted.  When  the  total  value  of  sales  was  less  than 
$750  no  tax  was  to  be  paid ;  above  that  sum  the  tax  was  levied  at 
the  rate  of  1  mark  per  1,000.  It  went  into  effect  on  October  1. 
1916.  The  bills  providing  for  an  increased  tax  on  tobacco:  for 
the  increase  of  postal  fees ;  and  the  stamp  tax  on  freight  bills  were 
adopted  with  certain  minor  changes.  The  estimated  yield  was 
thereby  raised  from  $125,000,000  to  $162,500,000. 

By  the  time  these  taxes  were  passed  (June  5,  1916)  Dr. 
Ilelfiferich  had  resigned  as  Minister  of  Finance,  and  his  place  had 
lieen  taken  by  Count  von  Roedem.  The  new  Minister  followed 
the  same  loan  policy  as  his  predecessor,  and  no  change  in  the  ad- 
ministration of  the  Treasury  Department  was  noticeable. 

B.\NKING  AND  CURRENCY,    1917-18 

The  year  1917  saw  no  changes  in  the  German  jxilicy  of  financ- 
ing the  war.  It  had  chosen  the  easy  path  of  finance  by  inflation, 
and  once  started  on  this  path,  it  was  more  and  more  difficult  to 
turn  back.  Whatever  might  have  been  said  in  its  favor  during 
the  first  year  had  now  lost  its  force.  The  unexpected  length  of 
the  war  was  making  the  question  of  inflation  ever  more  serious. 
The  note  issues  continued  to  increase  at  a  progressively  rapid 
rate.  By  July  23,  1917,  the  notes  of  the  Reichsbank  in  circula- 
tion had  grown  to  $2,157,500,000,  and  by  the  end  of  1917  they 
stood  at  the  enormous  figure  of  $2,867,000,000.  In  addition  to 
these,  there  were  $1,288,500,000  of  loan  notes  in  circulation  on 
the  earlier  date.  These  had  increased  by  December  23,  to 
$1,524,500,000.  This  paper  money  had  by  now  so  far  depre- 
ciated in  value  that  it  had  largely  driven  out  of  circulation  the 
subsidiary  silver  coin,  and  its  place  was  taken  by  the  loan  notes 
which  were  issued  in  denominations  of  one,  two,  five,  twenty  and 


t.KRMANY  --' 

fifty  marks.  So  great  was  the  scarcity  of  small  coin  that  the 
government  was  forced  to  issue  $6,250,000  of  small  5  and  10 
pfennig  iron  pieces,  and  this  was  later  ir-reased  to  $11,000,000 
and  augmented  by  $4,000,000  in  zinc  coins  and  $125,000  in 
aluminum.  There  was  little  danger  that  these  would  lie  either 
exported  or  melted  down. 

The  hoarding  of  coins,  which  was  widespread,  increased  the 
demand  for  additional  means  of  payment,  and  among  the  meas- 
ures adopted  in  order  to  reduce  the  demand  for  currency  was  the 
creation  of  a  closer  connection  between  the  Reichsbank  and  the 
postal  check  system,  and  the  reduction  of  charges  on  postal  check 
business.     The  financial  institutions  and  papers  endeavored  to 
educate  the  public  in  the  use  oi  checks  and  other  credit  devices. 
As  a  result  of  this  cami>aign  the  number  of  [>ostal  checking  ac- 
counts increased  from  112,000  at  the  end  of  1915,  to  148,918  in 
1916,  and  to  180,432  at  the  end  of  1917.    Singular  as  it  seems, 
the  use  of  bank  checks  in  Germany  has  been  introduced  on  any 
considerable  scale  only  w  ithin  a  decade,  and  had  made  but  slight 
progress.    Not  until  1916  had  the  Imperial  Bank  certified  checks, 
but  these  were  now  made  receivable  by  all  credit  institutions.    In 
\iew  of  these  facts,  we  may  conclude  that  the  inflation  of  the 
currency  was  greater  than  the  measure  of  the  additional  issues  of 
notes.    Because  of  the  almost  exclusive  use  of  currency  in  ordi- 
nar>-  commercial  transactions  on  the  part  of  the  Gennan  people, 
the  relation  between  the  notes  and  gold  reserve  was  regarded  as 
particularly  important.     The  relation  between  the  gold  reserve 
and  total  note  issue  of  the  Reichsbank  in  July  of  each  year  is 
shown  in  the  following  table:' 

Ygjy.                                                  Gold  Notes        Ratio  Gold  tu  Notes 

,014                                          $342,750,000  |4S1,12S,000              76.2 

95 596,145,000  1,306,230,000              45.6 

\l\l 616,295,000  1,658,535,000             37.1 

1917;  ;■.".■.  ■.!■.:■.".'. '.".'..■■•           614,220,750  2,0H935,50O              29.9 

There  is  evident  here  a  steady  reduction  in  the  proportion 
which  the  gold  bears  to  the  notes.    In  view  <>f  these  facts,  the  loss 

J.Vfit'  York  Times  Magazine,  July  l.S.  1917.  p.  14. 


11 


222  DIKKCT   AND  IXDIKKCT   COSTS  OI-    THE   \V.\K 

l)y  the  Reichsl)ank-  oii  June  23.  V)\7.  >,\  S19.1i5,lMX)  of  Koltl 
was  hijjhly  sifjnificani.  This  reversal  'jt  jjolicy  could  only  have 
resulted  from  dire  necessity.  The  dei>reciatii)n  of  the  mark  had 
Kone  so  far  that  it  was  impossible  for  riermany  tn  obtain  from 
neighboring  neutr;  s  the  gfx)ds  which  .^he  needed.  .\s  the  supply 
of  German  produces  which  could  be  spared  had  declined,  it  was 
necessary  to  pay  for  imports  with  gold.  This  was  an  indication 
of  growing  ecijnomic  distress,  and  was  undoubtedly  occasioned 
bv  the  entry  of  the  L'nited  States  into  the  war. 

The  decline  of  the  mark  in  neutral  markets  had  already  led 
to  tlie  placing  of  foreign  exchange  under  the  control  of  the 
Reichsbank,  and  this  was  carried  still  further  by  an  order  of  the 
Federal  C(mncil  adopted  in  January,  1917.  which  created  a 
monoiKily  under  the  auspices  of  the  Reichsbank  for  buying  and 
selling  foreign  e.xchange. 

The  profits  of  the  Reichsbank  were  enormous  during  the  war, 
but  all  above  about  9  per  cent  were  diverted  into  the  coffers  of 
the  state.     This  is  shown  in  the  following  table: 

REPORT  OF  PROFITS  OF  REICHSB.\NK,  1914  TO  1918 
(In  millions  of  dollars) 

Item                                                1914           1915  1916  1917  1918 

Net    $16.75       $26.62  $24.07  $24.23  $27.71 

War  tax  12.74  lO.a?  11.02  14.46 

Reserve  fund    1.52            1.23  1.17  1.17  1.17 

Dividend    4.60           4.03  3.91  3.92  3.91 

Dividend   (  per  cent )    10.24           8.98  8.68  8.72  8.68 

Public  treasury  ... 10.62           8.61  8.16  8.08  8.17 

Balance  bronglit   forward 0002          .0002  .004 

Exi'ExnrruREs.  1917-18 


The  cost  of  the  war  was  steadily  growing.  Whereas  the 
monthly  cost  had  been  estimated  at  S50().(X)0,000  in  1916,  this 
had  grown  tor  the  j)eriod  February  to  May.  1917,  to  S700.- 
0(X),tX)0.  and  by  the  end  of  the  year  it  was  stated  by  Count  von 
Roedern,  Minister  of  I'inance.  to  be  S75O.r)O(),0O0.  This  meant 
an  even  $25,000,000  a  day  for  war  expenditures.  These  growing 
costs  were  reflected  in  the  votes  of  credit,  of  which  three  were 


111 


GERMANY 


223 


asked  during  this  year,  each  for  $3.750.000,UUO,  voted  in  Feb- 
ruarv  July,  and  December.    The  budget  presented  in  March  an- 
nounced a  formal  deficit  of  $312,500,000  in  the  civil  budget 
which  was  to  be  met  bv  taxation.     The  service  of  the  national 
debt  was  placed  at  $891,500,000.    The  total  expenditures  of  the 
civil  budget  were  given  as  $1,337,500,000.    The  revenues  were 
$1  025.000.000.    The  figures  for  the  civil  budget  were,  however, 
quite  nominal,  as  were  also  the  statements  of  military  expendi- 
ture, for  there  are  left  out  of  account  a  number  of  items  which 
are  included  in  the  financial  statements  of  other  nations.     Pro- 
vision for  separate  allowances,  relief  and  similar  charges  wh:ch 
are  a  direct  outgrowth  of  the  war,  fall  in  Germany  for  the  most 
part  on  the  federal  states  and  the  municipalities.     It  is  impos- 
sible even  to  estimate  these,  but  it  is  known  that  the  existmg 
taxes  in  the  states  and  local  governments  have  been  greatly  m- 
creased,  in  some  cases  being  more  than  doubled.     It  has  been 
estimated  that  the  single  item  of  expenditures  for  the  support 
of  soldiers'  families,  which  in  Germany  is  met  by  the  municipali- 
ties   was  $37,500,000  a  month,  which  would  amount  for  the 
foriy-one  months  of  the  war  from  August  1,  1914.  to  December 
31,  1917,  to  $1,537,500,000.    The  finances  of  the  year  191/  were 
summarized  by  Herr  Demberg  in  a  speech  at  Carlsnihe  in  the 
following  language: 

"The  finances  of  the  war  have  really  not  been  effective. 
We  have  voted  between  $125,000,000  and  $187,500,000  new 
taxes,  but  at  the  same  time  we  have  lost  customs  duties  to 
the  a^unt  of  at  least  $62,500,000.  We  are  able  to  balance 
the  budget  only  by  leaving  the  whole  of  our  military  ex- 
penditure out  of  the  ordinary  estimates  and  entering  it  as 
^traordinarv  war  expenditure.  We  have  new  debt  to  the 
amount  of  $25,000,000,000  and  for  the  service  of  this  debt 
wTnl  from' $1,750,000,000  to  ^^^'f  O'^OO^.  But  m 
this  direction  practically  nothing  has  been  done  The  result 
is  that  the  credit  of  the  German  Empire  has  been  terribly 
reduced  abroad." 


::tl 


224 


DIRECT  AND  IN'DIKECT  COSTS  OK  THE  WAR 


1,1  ! 


BOKKOWINOS,    1917-18 

The  March  and  September  loans  consisted  of  issues  of  Treas- 
ur>'  notes  and  war  bopds,  the  former  at  4>4  and  the  latter  at  5 
per  cent,  both  issued  at  98.  The  war  loan  was  irredeemable  be- 
fore 1924,  as  the  earlier  issue  had  been.  But  the  Treasury  notes 
differed  from  those  previously  sold  in  that  they  were  made  re- 
deemable by  drawings  at  110  per  cent  beginning  with  January  1, 
1918.  It  has  always  been  the  boast  of  German  writers  that  they 
were  able  to  sell  successive  issues  of  war  bonds  practically  at  par, 
and  with  no  reduction  in  price  or  resort  to  higher  rates  of  in- 
terest, both  of  which  have  been  necessary  in  other  belligerent 
countries  In  the  case  of  the  Treasury  notes  just  described,  how- 
ever, a  high  premium  was  offered  the  purchasers,  which  was,  of 
course,  equivalent  to  raising  ♦he  rate  of  interest.  The  real  ex- 
planation, however,  of  Gertnany's  abi'ity  to  maintain  her  credit 
apparently  unaffected  by  the  vast  loans  which  she  had  issued, 
is  to  be  found  in  the  progressive  depreciation  of  the  currency. 
There  is  a  very  real  decline  in  the  value  of  securities  which  are 
sold  even  at  par  in  a  depreciated  currency.  A  bond  selling  for 
98  and  paid  for  in  a  mark  worth  only  40  per  cent  of  its  par  value 
is  sold  at  a  discount  as  truly  as  if  it  had  been  sold  for  $40  in  gold. 
The  deception  practiced  upon  the  mass  of  people  as  a  result  of 
inflation  and  consequent  depreciation  of  the  currency  may  have 
served  to  bolster  up  the  military  regime  a  little  longer  than  would 
otherwi.>e  nave  been  possible,  but  it  was  certainly  an  expensive 
way  to  secure  a  temporary  reprieve. 

The  subscriptions  to  the  sixth  war  loan  amounted  to  $3,280,- 
515.000.  of  which  $340,344,675  were  in  the  4^  per  cent  Treasury 
notes.  Ihe  total  number  of  subscribers  was  7,063.347,  or  one  in 
every  ten  of  the  ix>pulation. 

The  seventh  war  loan  issued  in  September,  1917.  was  similar 
to  that  just  described.  It  was,  however,  not  quite  as  successful, 
as  the  sum  realized  amounted  only  to  $3,156,415,000.  The  total 
number  of  subscribers,  too,  shows  a  considerable  falling  off  from 
the  sixth  loan,  the  number  being  given  as  5.213,373. 


i 


«;ehm.\ny 


225 


Debt.  \^)]7-\S 

The  (icrnian  <ld)t  l»y  the  end  of  1^)17  niav  Iw;  estimated  at  alK>ut 
.S24.(XX).(X)0.000.      The    votes    of    credit    thus    far    authorized 
amounted  to  $27 .250.CXX),00O.    But  it  was  stated  at  the  time  the 
last  credit  wa    granted  on  December  1,  that  the  Treasury  hail 
funds  to  carry  it  to  the  end  of  the  calendar  year,  and  that  thf 
additional  $3,750,000,000  would  be  used  to  meet  the  costs  of  the 
war  from  that  date  until  the  end  of  the  fiscal  year,  March  31. 
1918.     If,  therefore,  this  last  vote  be  subtracted  from  the  total, 
there  remains  the  enormous  sum  of  $23,500,000,000  as  war  ex- 
jjcnditures  down  to  December  31.  1917.     The  indebtedness  of 
f  lermany  at  the  end  of  July,  1917,  after  three  years  of  war,  was 
estimated  by  Professor  Jaffe  at  $30,000,000,000.'     The  ordinary 
civil  expenditure  was  estimated  at  $750,000,000  and  the  annual 
charge  for  interest  and  amortization  at  $1,875,000,000,  making 
up  a  total  annual  budget  of  $2,625,000,000.     To  these  figures 
should  be  added  various  other  charges  omitted  by  Professor  Jaffe, 
such  as  expenditure  for  pensions  and  other  war  charges,  estimated 
by  other  writers  at  not  less  than  $750,000,000,  so  that  a  more  cor- 
rect total  annual  budget  at  this  time  was  $3,375,000,000.    The 
debt  had  now  passed  the  limit  of  $25,000,000,000  which  Rudolph 
Havenstein,  President  of  the  Reichsbank.  thought  was  all  Ger- 
many could  stand,  and  which  he  was  sure  wcnilu  never  be  reached. 
If  this  figure  is  compared  with  the  modest  debt  l)efore  the  war. 
some  measure  of  the  financial  burden  imposed  ujwn  the  Empire 
can  be  secured.    And  this  figure  does  not  take  into  account  the 
debts  of  the  several  states  or  of  the  communes,  which  were 
already  large  and  were  steadily  growing. 


Taxation,  1917-18 

The  increasing  burdens  of  the  war  were  making  additional 
taxation  vitally  necessary,  if  further  deficits  were  to  be  avoidetl. 

» Quoted  by  Snow,  German  Trade  and  the  War.  Dept.  of  Com.  Bureau 
of  For.  and  Dom.  Corn.  Misc.  Series  No.  65,  p.  129.  Professor  Jaffe  was. 
editor  of  the  Europaische  Stoats  und  IVirtschaftsscitung. 


1 

1' 

i 

i 

ii: 

22(< 


KlKIt   I     \M>   IMHKI  (  T    COSTS  OK   THK   \V.\H 


One  .,1  the  Hr>t  t:i^k>  m  ilie  Keidistau  which  met  l-ebniary  22. 
l'M7.  \Mi>  the  ^..till^,'  ni  new  taxes.    The  pn.iwsals  of  the  K'overn- 
nient  were  acre,)tc.l  in  i-ractically  the  fonu  in  which  they  were 
intnMhKe.1.      Iliev  c..n>istc<l  of  new  taxes  .m  oal.  on  railway 
travel,  a  Jl»  per  cent  increase  in  the  war  i)rotits  tax.  and  a  tax  on 
the  Ueidishank.     I'.oth  the  cal  and  the  railway  traltic  tax  were 
verv  nnixnniiar.  the  former  raising  the  cost  of  lightinn.and  heat- 
ing hy  about  10  i*r  cent.     The  other  raised  the  price  of  ttckets 
from  U)  to  W.  l)er  cent,  hut  these  increases  were  alwut  doubled 
in  Prussia  l>v  reason  of  similar  increases  in  rates  introtluced  by 
the  Prussian'  Minister  of  Railways.     The  total  increase  in  the 
revenue  was  estinuitcd  at  $312.5(X).000  more  than  in  1916.  ol 
which  tlie  coal  tax  was  estimated  to  furnish  S125.0()0.000.  and 
the  traffic  tax  S78..=;tXX()(X):  the  rest  was  to  I*  obtained  from  the 
addition  to  the  war  profits  tax  and  the  tax  on  the  Keichsbank 
The  vield  of  the  war  profits  tax  for  the  year  1916-17  was  i.ot 
<lisclosed.   nor  were  e>timates  made   when   it   was   introduced: 
pr..bably.  however.  l>etween  SUK).lXX1.aX)  and  $125.(XX).000  were 
..l)tained  from  the  20  per  cent  increase. 

These  sums  were,  liowever.  insufficient  to  meet  the  ^rowin},' 
war  costs.  Heavier  taxation  was  needed  if  Cermany  was  to 
avoid  continued  deficits  and  the  payment  of  interest  on  her  debt 
out  of  new  loans.  I'hal  this  problem  was  appreciated  in  C^r- 
many  mav  l)e  seen  from  the  following  cpiotation  from  a  North 
German  i>aper'  in  which  heavier  taxation  is  urjjed  in  order  to 
av(!id  the  dangers  of  too  };reat  a  dq^ndence  uiwn  a  loan  iKilicy: 

"In  order  to  obviate  tliis.  a  thoroughstung  policy  of  taxa- 
ti.m  is  advocated,  including  a  property  tax  of  20  per  cent,  a 
vearlv  tax  of  .s  per  cent  on  property  increment,  an  inherit- 
ance "tax  on  an  average  of  10  per  cent,  with  reversions  to  the 
lMni)ire  in  all  cases  of  entailed  estates  where  the  testator  has 
not  at  least  three  direct  descendents :  an  increase  m  the  in- 
come tax  of  50  iK-r  cent:  an  increase  in  customs  duties  up  to 
a  yield  of  about  $1,125,000,000;  ta.xes  on  consumption. 
|)rofits,  traffic  and  monopolies." 
>  Quoted  in  tlie  lUonomisl.  November  3,  1917,  p.  732. 


C.KRMAXY 


The  taxes  voted  were,  however,  not  merely  Ixrlated;  they  were 
also  slow  in  Iwin^  pnt  int(»  effect.  By  the  middle  of  August, 
1<)17.  the  ICmpire  had  not  yet  reccive<l  a  single  jienny  of  the  war 
taxes.  The  war  profits  tax  was  still  uniKii«l.  after  three  years  of 
war.  This  tax  liad  been  first  agreed  \\\H>n  at  a  meetini,'  of  the 
finance  ministers  of  the  several  states  on  June  10.  1915.  The  law 
concerning  the  preliminary  measures  for  the  assessment  and  col- 
lection of  the  tax  was  passed  on  l)eceml)cr  24.  IKIS.  and  the  tax 
was  voted  on  June  21.  Vn6.  It  was  not  until  July.  1917.  how- 
ever, that  the  prosjwctive  taxpayers  received  their  assessment 
papers.  The  c.«i  tax  which  was  voted  April  8,  1917,  did  not  go 
\nu>  effect  until  Aufjust  1  of  that  year.  This  exjiericnce  proves 
conclusively  the  necessity  of  introduciiiK  tax  measures  early  in  a 
war  if  their  receipts  are  to  afford  any  assistance  in  fin;»ncinp  it. 

B.WKINt.   ANP  ClRRENCV.    1918-1*) 

The  year  1*)18  saw  little  change  in  the  financial  policy  of  the 
war.  The  issue  ..f  notes  and  loans  was  still  the  chief  dei)endence 
of  the  Treasury.  Little  additional  use  was  made  of  taxation. 
In  fact,  the  costs  were  growing  so  rapidly  that  the  financial  situ- 
ation was  by  this  time  quite  out  of  hand,  and  even  a  vigormisly 
enforced  policy  of  taxation  would  not  have  mende<l  matters. 

The  issue  of  notes  continued  unabated.  On  Ma  ISthenbte 
circulation  of  the  Reichslwnk  was  given  at  $2,839,000,000  and  the 
loan  notes  at  $1,995,000,000.  By  October  31  the  Reichsl)ank 
issues  had  increased  to  $4,165,500,000  and  loan  notes  to  $2,357.- 
500,IXX).  At  this  date  the  Treasury  notes  in  circulation  amounted 
to  $88,500.000— giving  a  total  of  $6.61 1 .500,000. 

The  signing  of  the  armistice,  with  its  attendant  disorganization 
as  war  activities  ceased,  led  to  a  greater,  rather  than  less,  resort 
to  the  use  of  credit,  and  the  issue  of  notes  in  circulation  continued 
to  show  a  steady  increase.  By  November  15.  1918,  the  total  was 
$6.'X)6.000,000,  against'  which  only  $637,500,000  of  gold  was 
held.  A  panic  now  set  in.  and  runs  took  place  on  the  l»nks. 
The  banks  published  a|)peals  to  the  people  not  to  withdraw  de- 


i 


JJ8  DIRECT   AND  INDIRECT  COSTS  OF  THE  WAR 

pi.sits.  aiul  not  to  hoard  currency.  But  they  were  unsuccessful 
in  preventing  withdrawals.  A  despatch  from  Zurich  quoted  the 
Xcucstc-Xachriclitcn'  of  Munich  as  saying  that  the  Reichsbank 
liad  issued  notes  to  the  amount  of  $300,000,000  in  the  last  four 
weeks. 

As  a  result  of  this  continued  inflation,  combined  with  scarcity, 
i:rices  had  risen  to  unbelievable  heights. 

Some  typical  prices  prevailing  in  Berlin  between  December, 
1M18.  and  March.  1919,  were  as  follows:  Lady's  costume,  plain. 
^275 :  chemise,  .$8.75 ;  man's  business  suit,  $125 ;  woolen  goods. 
IK-r  yard,  $17.50;  stockings,  per  pair,  $5;  leather  boots,  per  pair, 
S25:  white  shirt  with  cuffs,  $12.50;  paper  collar,  75  cents;  meat, 
per  iwund,  $3  to  $4;  butter,  per  ;x>und,  $7.50;  potatoes,  per 
pound,  13  to  24  cents;  beans,  per  pound,  $1.50;  tea.  per  pound. 
$16.50;  cocoa,  per  ixjund,  $15  to  $22.50, 

ExPENniTiREs.  1918-19 

During  the  year  1918  two  votes  of  credit  for  $3,75O,0OO,0O(^) 
each  were  passed  in  March  and  July.  A  third  was  scheduled  for 
\oveml)er  22,  but  before  this  date  arrived  the  signing  of  the 
armistice  had  brought  military  operations  to  an  end.  On  the 
occasion  of  the  request  for  the  March  vote,  Count  von  Roedern, 
Minister  of  Finance,  said  that  Germany's  monthly  war  costs  had 
increased  from  $500,000,000  in  the  winter  of  1915-16  to  $937,- 
500,000  in  the  previous  five  months,  or  almost  double.  The  in- 
dependent Socialists  voted  against  this  credit  on  the  ground  that 
the  recent  peace  treaty  with  Russia  made  it  impossible  to  main- 
tain friendly  relations  with  that  country.  By  July  the  total  war 
costs  were  estimated  at  S40,750,lH.Kt.(:00.  as  follows:' 

Mobilization   costs    $25O,00O,OII(' 

Purely  military  expenses    ^'^'SlS'nnl! 

Feeding  the  nation,  etc T'ocn'lwt.IIi 

Compensation  in  invaded   districts enn'nnn  nni 

Reconstruction  of  army  and  fleet l'x99'S2n'nnll 

Pensions,  etc 6,250.CXX),»»<t 

$40,750,000,000 
1  Quoted   in  the  Commercial  and  Financial  Chronicle,  November  2,  191fi. 

-  Herr  ticorK  Bernhard.  <|uoted  in  Lomlon  Hionoinist.  July  27.  1918,  p.  111. 


GERMANY 


229 


As  a  result  of  the  revolu  >n  in  Germany,  the  expenditure,  in  spite 
of  cessation  of  military  l  ^rations,  increased  rather  than  dimin- 
ished. It  was  estimated  that  during  the  last  fourteen  days  of 
November,  the  Soldiers'  and  Workmen's  Council  spent  over 
$200,000,000  of  public  money  and  that  since  the  revolution  more 
than  $250,000,000  had  been  used  in  wage  increases,  war  bonuses, 
etc.,  on  the  part  of  the  government. 

Borrowings,  1918-19 

The  eighth  German  war  loan  was  announced  in  March  accord- 
ing to  schedule.  It  was  in  the  usual  form  of  a  4>4  per  cent  note 
and  a  5  per  cent  bond,  issued  at  98.  A  total  of  6.510,278  sub- 
scriptions (4,693,516  being  for  $.25  or  less)  yielded  an  aggre- 
gate of  $3,691,500,000. 

The  ninth  war  loan,  which  was  announced  in  September,  yielded 
only  $2,608,489,925,  being  a  tremendous  fall  from  the  prior  loan. 
The  subscribers  too  shrank  from  6,510,278  in  March  to  2,717,657 
in  September.  This  latter,  like  its  predecessors,  was  a  5  per  cent 
stock  irredeemable  before  1924,  and  a  4y2  per  cent  Treasury  bond 
redeemable  by  drawings  at  110  to  120  according  to  the  date  of 
drawing.  The  price  was  98.  The  only  change  was  an  increase 
ir  the  premium  granted  to  the  41^  per  cent  issues.  The  follow- 
ing is  a  complete  table  of  German  war  loans : 


2iO 


DIRKCT   AND  IXDIRKCT  tOSTS  OF  TIIH   WAK 


*-:  a| 


-Hi. 


LOAN  DATE 

1  S«»t.  10-19.  1914 

:  Ffb.  ::-Mit.  i9.  ms 

3  Sept.  <-.'.'.  1915 

4  Mil.  4' 22.  1916 

s  Sept.  4-Oct.  5.  1916 

6  Mh.  4-Aptil  18.  1917 

7  icpl.-Ocl.  1917 

K  M<l.  191S 
9  Sept.  I91>< 


GERMAN  WAR  LOANS 

SUB- 
CHARACTER  AMOUNT        9CRIBERS 


Inpcrial  loin 
Trciturr  bond! 

laipciiil  Imb 
Treiiuiy  bon4t 

ImpetUI  Iota 

Inperiil  loin 
Treiflury  bon4t 

Inpttill  loin 
Treliury  bondi 

Imperlll  loin 
Treilarir  bondf 


Impcriil  loin 
Treiiury  bonds 


Imperlll  loio 
Treiiury  bonds 


Imperlll  loin 
Treisur;  bonds 


»70.2i0,«»»  ,  ,77  235," 

2,10,000,000/  l.l".-=», 

W,7SO,00Oi  ».»"■«'"( 

.1,040,000,000  .i,llll«,41H 

•.>,a»,ooo,ooo »  .  _fl  ^-,  ( 

3113,000,000  f  •■.Z™.»*'i 

■j,20H,:iOO,noo)  iKiortUH.' 

«K,a50.oooj  •'.'""•'»", 


;i,-j»,oi5,ooo    7,(Kt,:vn- 


•     3,l.l«,4r),aOO     .■>,Ji:!,;!7:t  ] 

'     .I.IW  ,500,000     «,rilO,'.I7K  J 
'     2,t)0K,4l«,!W>      i,"!",*.^  J 


MATURITY 

1 

w 

11 

II 

w 

9 

^M 

^  A 

c 

J 

mJT 

••  m 

j 

!C.5 

W2* 

'l 

U7.:i 

iitiiwiV 

'» 

ibt.r. 

WH 

■'» 

W..) 

itiai-'ij' 

."» 

!«• 

WH 

•"» 

(iH.:. 

11124 

4K 

ifi 

i!ria--« 

••) 

m 

KI24 

*» 

US 

itiaiiK 

.•| 

m 

IIW 

4K 

W  FronJin.l,' 

18 

II  110 

.'» 

IM 

1W4 

m 

88 

.. 

.~> 

MH 

1IU4 

m 

IM 

** 

."i 

IM 

11124 

4% 

W 

" 

t24,H40,41»,ll2r> 


Taxation.  1918-19 

The  desperate  financial  situation  clearly  calletl  for  radical 
measures,  .\ccordingly,  the  {jovemnient  introduced  more  far 
reaching  proposals  for  taxation  in  1918  than  it  had  yet  ventured 
to  suggest.  Xo  fewer  than  eleven  new  financial  nieasures  were 
j)rop<)sed  which  it  was  estimated  would  yield  additional  revenue 
of  $750,000,000.  Taxes  were  imiMised  ui)on  practically  all  bev- 
erages: they  were  applied  also  to  exchange  and  certain  lousiness 
transactions ;  to  luxuries  and  war  profits.  Postal  rates  were  in- 
creased. Owing  to  the  restriction  of  imperial  revenues  to  indi- 
rect taxes,  it  was  impossible  to  secure  many  lucrative  sources. 
The  heavy  inheritance  and  income  taxes  of  England  and  the 
United  States  were  wholly  lacking,  while  the  peculiar  method  of 
levying  the  war  profits  tax  brought  in  less  than  was  warranted 
from  that  source.  This  is  not  to  say,  however,  that  there  were  no 
increases  in  direct  taxes,  for  there  were.  From  a  recently  pul>- 
lished  survey  of  municipal  taxes  in  1 1 1  Prussian  cities,  it  w  ould 


■■Si 


Ill 


tiEHMANV  -"^i 

appear  that  during  the  year  1917  the  direct  taxes  were  increased 
10  per  cent.  At  the  same  time  the  states  were  screwing  up  their 
income  and  property  taxes  even  more  rapidly. 

The  estimated  budget  revenues  for  the  fiscal  years  19U)-17  and 
1917-18  and  1918-19  are  given  in  the  following  table,  and  al- 
though sufficient  time  has  elapsed  in  which  actual  receipts  might 
have  been  announced  had  there  \xtn  a  disposition  to  do  so,  they 
still  remain  in  the  empire  of  silence : 

Source  1916-17  1917-18  191»-19 

Hosts  and  teleisrapli $220,322,125  $220,31 1,875  $220.31 1,675 

PnntinK   office    3,471,250  3.471,250  3.471.250 

Railway                40.561 .50u  40.561.500  40.581. .SOO 

Custom  and  excise 178.232.500  188.482,500  188.487.500 

Stamp  duties  71.796,250  144,684,987  150,564,990 

Wliiskey  tax 48,498,7.S0  48,498.750  48.499.000 

Suirar  duty        40,813.000  40.813.000  40.813.000 

Beer  tax            32,237.500  32,237,500  32.237.50o 

Salt  tax                    15.286.000  15286.000  15.286,i«00 

Tobacco  and  cigarettes 12,519,500  •H819.S00  34.819.500 

Federal  contributions   12,985,198  12.985.198  12.98.rl98 

Miscellaneous  taxes 133.179.161 

Various         18.950.035 

Special  yvar  taxes 12O.000.000  312..SOO.aX)  718.750.000 

$948,852,769       $1,094,652,060       $1,833,174,826 
Extraordinary   21.876,963  21,482,307        _j7^017^ 

^70.729.732        $1,116,134,367       $1,860,191,907 

This  silence  has  l)een  l>roken  twice :     First,  the  admission  by 
Herr  Demberg  at  Carlsruhe  that  there  had  \ieen  a  loss  in  customs 
duties  to  the  amount  of  at  least  SC)2.500,0(X),  although  subse(|uent 
Iwidgets  carry  the  prewar  estimate  of  some  $178,000,000;  second, 
the  statement  of  Count  von  Roedern  in  the  Reichstag  in  April. 
1918.  in  which  he  stated  that  more  had  been  raised  in  German) 
by  taxation  than  was  commonly  supposed,  citing  in  support  of 
this  the  fact  that  the  defense  levy  had  yielded  $250.000.000 :  the 
war  profits  tax  $1,250,000,000,  and  that  municii>alities  had  raised 
$500,000,000  for  the  relief  of  soldiers'  dependents,  sejKirate  allow- 
ances, etc.    The  utterance,  hoyvever.  is  more  i)ortentous  than  thv 
silence,  because  it  reveals  that  the  total  imi)erial  war  taxation  for 
the  four  years  of  war  was  $1,500,000,000  from  sources  which 


»^ 


252  uiKKti  AXi)  ixniKKi  I  losrs  oi"  tiik  wak 

would  cease  with  war  itself,  leaving  the  enormous  debt  and  its 
annual  charge  wholly  without  provision  from  taxation  to  meet  it. 
As  the  imperial  burden  carried  l)y  the  iiiu;iicipaliites  in  the  form 
of  separate  allowances,  relief  to  soldiers'  dependents,  etc.,  was  a 
few  months  later  announced  by  Dr.  SchitTer  to  be  $1,240,000,000, 
it  would  seem  that  only  $500,000,000  of  this  ainmint  had  been 
raised  by  taxation  in  the  sta  es  and  municipalities,  thereby  in- 
creasing their  war  burden  by  debt  $740,000,000. 

But  taking  the  estimated  budget  revenues,  without  any  deduc- 
tion for  shrinkage  in  customs  or  other  taxation  such  as  occurred 
in  France,  Russia  and  Italy,  and  assuming  that  the  full  antici- 
pated increases  were  realized,  the  following  result  is  arrived  at : 

>  car  1  merest  Charges       Revenues 

1914-15 $317,000,000  $851,294,600 

1915-16 575,000,000        829,270.12.=; 

191f^-17 890250,000        970,729.732 

1917-18 1,467,750,000  1.116,134,367 

1918-19 1.975,000,000  1,860,191.907 

$5,225,000,000    $5.627.620,7.?! 
Less  5  years  nurmal  civil   expenditure    ( 1914, 
$851. 294,600)    4,256,463,000 

Net  surplus  over  normal $1,371.147. 7.M 

Total  interest  charKOS  for  five  years 5,225.00fl,(XX) 

Deficit  on  basis  of  estimated  revenue $,1,853,852,269 

In  a  speech  to  the  German  National  .\ssenibly  at  Weimar  on 
{•'el)ruary  15.  1919.  Dr.  Schiffer.  the  Minister  of  Finance,  gave  a 
resume  of  war  finance  and  an  estimate  of  future  needs.  The  ex- 
IK-nditures  of  the  war  were  given  out  by  him  as  follows :  ' 

^car  Amount 

1914 $1.875,00O,0a) 

1915 5.750.000.00O 

1916  6.650.000.000 

1917      9.87.5,000.000 

1918 12.125,000,000 

$36,275,000,000 

Treasury  hills  1.500,000.000 

.Advances  to  allies 2,375,000.000 

$40,150,000,000 
'  I'oisischt'  /I'ilHHu.  Fohruary   16.  1919. 


CERMANY 


25S 


This  sum  exceeded  by  $3,500,000,000  the  credits  voted.     The 
daily  expenditures  during  the  war  ranged  from  $12,250,000  m 
1914  to  $33,750,000  in  1918.     The  total  debts  contracted  by  the 
government  during  the  war  aggregated  $39,425,000,000  with  an 
annual  interest  charge  thereon  of  $1,975,000,000.     In  a  later 
memorandum  presented  to  the  National  Assembly,  Dr.  Schiflfer 
stated  that  the  total  war  expenditures  amounted  to  $42,500,000,- 
000.'     To  meet  this  enormoMs  total  the  German  revenues  from 
1914  to  the  end  of  1918  had  amounted  to  $4,250,000,000.     This 
is  $1,377,620,731  less  than  the  total  estimated  receipts  for  the  war 
l)eriod,  and  if  true,  means  that  the  ordinary  civil  budget  for  the 
war  period  was  not  even  met  by  revenues,  but  would  give  a  deficit 
of  $7,000,000.     Dr.  Schiflfer  stated  further  that  the  remainder 
was  raised  by  loans,  liy  the  issue  of  Treasury  bills,  and  by  the  crea- 
tion of  floating  debt.     The  memorandum  showed  that  in  addition . 
to  the  money  outlays  the  war  damages  in  Germany  amounted  to 
$1 .124,000,000 ;  the  claims  of  ship  owners  to  $375,000,000 ;  while 
$1,240,000,000  was  spent  for  the  relief  of  families  of  dead  sol- 
<liers  by  the  states  and  municipalities.     Dr.  Schif?er  estimated 
that  the  national  annual  expenditures  for  the  future  civil  budget 
and  debt  charges  would  be  $2,500,000,000  compared  with  $600.- 
000,000  before  the  war.     The  annual  expenditures  of  the  states 
and  communes  would  be  about  $1,250,000,000  compared  with 
$750,000,000  before  the  war,  the  difference  measuring  the  war 
burdens  imposed  upon  the  local  units.     The  total  amount  of  reve- 
nue to  be  raised  by  taxation  in  the  future  would  therefore  be 
$3,750,000,000.     Before  the  war  only  $1,250,000,000  was  raised 
by  taxation.     These  figures,  moreover,  do  not  include  the  indem- 
nity to  be  paid  to  the  Entente  Allies.     If  this  be  taken  into  ac- 
count, the  annual  charges  upon  the  German  people  will  not  be  less 
than  $5,000,000,000. 

If  national  bankruptcy  is  to  be  avoided,  it  is  clear  that  taxation 
of  the  most  drastic  character,  both  direct  and  indirect,  will  have 
to  be  resortec'.  to.     In  addition  to  this,  the  plan  of  a  capital  levy 

'CopenhaReii  (Usvattl.  nf  Marc);  26.  1919. in   ll'ashixyt.oi  I'ost.  March  27, 
1919. 


.M4 


DIKKCT   AND   INPlKKfT   COSTS  OK  TIIK   \V.\K 


on  wealth  as  a  means  of  scaling  down  the  debt  at  25  i»er  cent  or 
30  per  cent  has  found  favor  in  Germany.  Dr.  Schiffer  promised 
that  the  debt  would  not  be  repudiated,  but  the  numageinent  of  the 
postwar  finances  will  call  for  more  skill  than  the  financing  ()f  the 
war  itself  received  if  this  is  to  \x  avoided. 

Time  has  rendered  the  final  venlict  on  the  German  policy  of 
war  finance,  which  must  be  condemned  as  wasteful  and  burden- 
some. The  loan  policy  which  led  directly  to  inflation  and  high 
prices  was  characterized  by  Dr.  Schiffer  himself  as  a  "program 
of  desi)eration."  A  plan  which  might  have  worked  well  in  a 
short  and  victorious  war.  the  cost  of  which  would  \k  paid  by  in- 
demnities collected  from  a  conquered  foe,  broke  down  utterly  in 
a  war  which  was  not  only  protracted  and  expensive  lieyond  all 
previous  calculations,  but  which,  contrary  to  expectations,  resulted 
in  defeat.  Judged  by  the  test  of  actual  experience,  the  German 
theory  of  war  finance  must  be  relegated  to  the  limlx>  of  shattered 
superstition,  together  with  that  of  supposed  German  military  in- 
vincibility. 

The  direct  money  outlay  in  (jermany  may  be  arrived  at  by  a 
summary  of  her  votes  of  cretlit,  and  by  htr  lx)rrowings,  as  the 
secrecy  of  the  Ministry  of  Finance  has  not  j)ermitte(l  of  other 
calculation.     These  are  as  follows : 


V'oTKS  OK  Credit 


1.  August,   1914  . . . 

2.  December.   1914, 

3.  March.    1915... 

4.  .August.  191  .S  .  . . 
.S.  Dccemlier,  191.S. 

6.  June,  1916 

7.  Octolxr,  1916... 

8.  February,    1917  . 

9.  July,  1917 

10.  December.   1917. 

11.  March,  1918  .... 

12.  Julv,  1918 


.•\mount 
$1,2S0,000,(XK) 
1.250,000,000 
2,5a).000.000 
2.500,(X)0,0(K) 
2,500,000,000 
3,000,000,000 
3,000,000,000 
.1.750,000,000 
.?.750.000,000 
.1750,000,000 
.?.75O,O0O,00O 
3.750,000,000 


Receipts 
Source  Amount 

Nine  war  loans $24,640,419,925 

Loan  in  United  .States.  10,000,000 

Discounts,  Imperial  Bk.     6,776,700,000 
Treasury  hills  '  1.500.000,0(XI 


Borrowing 

War    chest,    gold    and 

silver 

Russian  indemnity.  K<>ld 
Belgian  levies 


.$.12,927,119,925 


$34,750,000,000      Floating  debts 


81,000,000 

51,000,000 

.500,000,000 

$.33,559,119,925 
.  Sot  disclosed 


'  This  is  the  amount  stated  by  Dr.  Schiffer  on  Febru.iry  15,  1919,  but  it 
undoubtedly  i.>  much  too  small,  as  by  .August  17,  1917,  $610,000,000  were  held 
in  Turkey  as  base  for  the  latter's  note  issues,  and  at  this  time  there  were 
$326,200,000  in  the  Roichsbank,  an<l  an  unknown  nmouTit  in  circulation. 


CEKMANY 


_\^5 


As  the  revenues  fi>r  the  five  years  according  to  Dr.  Schiffer 
amounted  to  $4.250.CHX).tXX1.  and  as  the  civil  prewar  budget  (hir- 
ing the  same  period  would  amount  to  $4,256,473,000.  it  is  a  con- 
servative estimate  that  these  items  may  l)e  oflfset.  The  actual  ex- 
penditure as  announced  bv  Dr.  Schiflfer  was  $36,275,000,000,  and 
including  advances  to  allies.  $40,150,000,000.  This  would  mean 
a  floating  del)t  of  $3..iW.0O().000.  but  the  actual  floatirfg  debt  is 
undoubtedly  much  higher  than  the  (jfficial  statements  wcmld 
indicate. 


-LMU 


Ir 


,(  t: 
1 


ri'f; 


i-'- 


it) '' 


AUSTRIA-HUNGARY 

Tlu-  tinaiices  of  the  Dual  I^nipire  were  probably  in  worse  condi- 
tion at  the  outbreak  of  the  war  than  any  of  the  other  belligerents 
with  the  jiosslble  exception  of  Turkey.  For  ten  years  the  gov- 
erninent  had  l)een  facing  deficits,  owing  primarily  to  the  cost  of 
armament,  and  had  met  these  by  borrowing.  Consequently,  the 
debt  was  large  and  the  credit  of  the  country  impaired. 

The  tirst  effects  of  impending  war  were  felt  in  the  financial 
world.  To  prevent  a  panic  the  lx)urse  was  ordered  closed  for 
tiirec  days  on  July  27.  Two  days  later  both  the  Vienna  and  the 
I'.udapest  stock  exchanges  were  ordered  not  to  open  until  further 
notice.  On  the  31st  a  moratorium  was  declared,  ixjstixjning  pay- 
iiRiit  of  all  bills  and  accounts  due  before  August  1,  until  the  14th, 
and  all  bills  and  accounts  due  between  August  1  and  14  until  the 
J7th.  Later  this  was  made  permanent.  On  August  1,  general 
mobilization  liegan  and  the  country  was  actually,  as  well  as  offi- 
cially, at  war. 

i).\.NKi.N"<;  AND  Clkkkncy.  1914 

Measures  were  at  once  taken  to  protect  the  lini)erial  .\ustro- 
Hungarian  Bank  and  safeguard  its  gold  reserve.  The  banks  were 
not  rc(|uired  to  pay  more  than  3  per  cent  of  the  checks  presented, 
and  3  ])cr  cent  of  their  customers'  current  accounts,  but  in  no  case 
more  than  $4()  a  day.  The  bank  rate  rose  rapidly  from  4  per 
cent  until  it  reached  8  per  cent  on  August  2.  On  August  5  the 
bank  act  requiring  a  40  per  cent  metallic  reserve  to  be  held  by  the 
bank  against  its  notes  was  suspended  (which  meant  a  suspension 
of  siH-'cie  payments).  At  the  same  time  the  pui)lication  of  the 
bank  reports  was  prohibited  by  the  government.' 

Asa  result  of  this  policy  of  secrecy,  the  operations  of  the  bank 
diirinj,'  the  first  three  years  of  the  war  are  shrouded  in  mystery. 

'  X.  Fetlorn.  OesterreicIi-UnRarns  Geld  und  Kreditwesen  im  Kriege.  1914. 
Ill  .trchh'  fiir  Sncialuissi-nsihafti'ii,  Bd.  40,  Heft  2. 


ArSTRIA-HL'NOAKV 


2.^." 


Not  until  December,  1917.  was  the  silence  broken.  At  that  time 
figures  were  published  for  certain  of  the  bank's  operations  during 
the  war.  The  gold  reserve  of  the  bank  on  July  23,  1914,  was 
$247,600,000.  tu  which  $12,000,000  abroad  may  be  added.  A 
demand  for  small  change  in  place  of  the  quickly  hoarded  silver 
was  met  by  the  bank  issuing  notes  of  two  kronen  (40  cents). 
Until  then  the  lowest  denomination  was  ten  kronen  ($2).' 

To  procure  funds  to  meet  its  needs,  the  government  entered 
into  an  ar.  angement  with  the  bank  by  which  it  was  to  be  ad- 
vanced money  in  return  for  Treasury  bills  which  the  bank  agreed 
to  sell  to  the  public  on  commission.  The  first  war  call  made  on 
the  Imperial  Austro-Hungarian  Bank  was  indirect,  the  bank  re- 
ceiving two  year  Treasury  bills  to  the  amount  of  $190,000,000 
(of  which  Austria  furnished  $120,000,000  and  Hungary  $70.- 
000,000).  which  it  then  sold  to  a  consortium  of  bankers,  which  in 
turn  borrowed  the  recpiisite  cash  from  the  bank  on  the  security 
of  these  same  bills. 

The  needs  of  the  government  were  too  great,  however,  to  per- 
mit it  to  use  the  bank  only  as  a  brokerage  firm.     It  soon  made 
direct  appeals  to  the  bank  itself  for  funds.     The  first  direct  call 
was  l>ased  on  an  agreement  entered  into  on  August  14.  1914. 
The  two  governments  borrowed  $400,000,000  against  a  deposit 
of  Treasury  bills  to  the  amount  of  $533,300,000  redeemable  in 
gold  and  bearing  interest  at  5  per  cent.     This  represents  at  the 
very  l)eginning  of  the  war  a  discount  of  25  per  cent,  and  is  a 
sufficient  commentary  upon  the  credit  rating  of  the  government. 
A  second  agreement,  October  7,  1914,  followed,  allowing  the 
government  to  borrow  not  less  than  $400,000,000  against  promis- 
sory notes  (Austria  $254,400,000  and  Hungary  $145,600,000). 
.\  supplementan,-  agreement  of  April  12,  1915,  placed  a  further 
sum  of  $160,000,000  at  the  disposal  of  the  government  on  the 
same  terms. 

The  short  term  borrowings  of  Austria-Hungary  to  the  end  of 
1914  may  be  summed  up  as  follows:  * 

1  H   Hartung,  Die  finanzielle  Rustung  dcr  krieqfuhrev.den  Staalru  (  Berlin. 
1914),  p.  23. 

■'Economist  (London).  December  2$.  1915,  p.  104«. 


2M< 


DIRKCT  AM)  INDIRF.i  T   COSTS  OK  THE   WAR 


1     $l(lf)J.i(M)l«'    Fmm  Aiutro-Hunnariaii  Bank  iin  snurit)  of  $li5.0()0.(KK)  5 

ptT  CKttt  2' J  year  Treasury  bills: 
- —  J(>5.IKI0.I)00    Same  Muirre  mi  5  per  cent  five  year  TreaMiry  Ixitid': 
•' —  -'(i5.(IO().0(«l    Same  xmrce  on  hills  sifnied  by  l-'innnce  Minister; 
4        4l.fi5(MK10    AiUaiiced  by  Krmip  <if  AiiNtnaii  bank>  mi  "turrait  account" 

anil  repaid  before  end  of  year. 

Ill  ailditiini  to  thtse  sums,  advances  were  made  to  Austria- 

llmn^arv  hy  (ieniian  hanks  against  one  year   rrea>nry  !)ills  at  (> 

l^r  i-ent.      Ihese  amounted  to  $43.(XX),IXX)  in  Xovemk-r,  1914. 

I  wo  further  advances  were  made  the  follow injj  year,  one  in 

\uj,^ust  for  $li5,(K)().lHX).  and  the  (.ther  in  XovemU-r,  1^15.  for 

S"5.(KHt,(K)(»  on  the  same  terms  as  the  first  Inans. 

It  was  stated  on  what  the  I^ndon  llconomist '  said  was  "goo<l 
authority"  thtt  Herr  ICngel.  the  Austrian  Minister  of  Finance. 
refused  tlatly  lo  l)e  resix>nsil)le  for  such  a  shortsightetl  financial 
Iiolicy.  If  the  war  went  on  for  another  year,  he  is  reporte<l  to 
have  said,  the  debt  would  reach  a  figure  of  $11,5CX).000.000  to 
S1_',50().(HV\()0(),  and  as  the  total  national  wealth  of  Austria- 
Hunj;ar\  was  estimated  at  only  from  $27.5()O,(X)(\0(X)  ttf  $30,- 
00(),()()(i,l)(K)  national   (and  imperial)  l)ankruptcy  was  probable. 


l"xi'KxniTi-RF.s.  1014 

It  is  difficult  to  fjet  authentic  figures  for  the  war  expenditures 
in  Austria-Hungary  due  to  the  official  censorsiiip.  The  report 
of  the  State  Debt  Control  Commission,  however,  which  was  pub- 
lished in  \oveml>er.  1913,  showed  the  war  expenditure  to  the 
end  of  1914.  For  the  last  fie  months  of  1914  the  war  cost 
Austria  ai)proximately  $1,125.(XX),000.  or  al)Out  $225,(XK)JXX) 
per  month.  Hungary  jiaid  during  the  same  period  some  $375.- 
iWXUMK*,  or  $75,(XX),(XX)  per  month.  After  that  date  all  is  con- 
jecture. A  year  later  it  was  estimated"  that  up  to  November. 
l')15,  Austria  had  si)ent  $3.750.{X)0,(KX)  and  Hungary  $1,750.- 
(KHl.lKX*.  The  average  monthly  expenditures  for  the  first  two 
years  of  war  were  estimated  bv  the  Economist  ( Ix)ndon)  at 
.SJ()4,O<X>,00D. 

'  Dccfmlxr  25,  1915.  Siipp.,  ]>.  5. 

-  A).r  Tail.  Berlin,   Xovember  .%.   1915. 


AlSTRIA-HlNflAKY 


UORROWINC.S,    1*H4 


23" 


\tlvances  from  the  bank  couUl  not  be  counted  upon  alone  to 
meet  these  growing  war  costs,  and  the  issue  of    Treasury  bills 
and  promissory  notes  was  creating  a  floating  indeUedness  which 
threatened  soon  to  liecome  unmanageable.     Accorduigly.  m  No- 
vember, 1914.  the  first  funded  loan  was  issued.     As  m  (.emianv 
so  al»  in  Austria-Hungary,  the  loans  followed  a  prearranged 
plan  and  were  issued  at  half  yearly  intervals  every  November 
and  May.     In  contradistinction  from  the  Cerman  i)ohcy.  how- 
ever the  proceetls  (')f  the  loans  were  not  used  primarily  to  rei)ay 
the  Advances  of  the  l)ank  and  to  fund  the  outstanding  Treasur> 
bills,  but  were  applied  to  the  payment  of  ccmtractors  and  other 
future  nee<ls.  while  the  floating  debt  was  renewed.'     This  at 
least  was  the  practice  in  the  early  part  of  the  war.     The  first 
Vustrian  l..an  consisted  of  5/.  per  cent  five  year  Treasury  Innids 
issuetl  at  97/..  of  which  the  smallest  denomination  was  1(X» 
kronen  ($20).     The  Hungarian  loan,  which  was  distinct  from 
that  issued  by  Austria,  was  in  the  form  of  stock  which  iiennittwl 
the  subscriber  to  demand  repayment  after  a  year's  notice  in  1919. 
The  interest  was  fixed  at  6  per  cent  and  the  subscription  price  at 
t)7.5.     The  smallest  denominatiw  was  50  kronen  ($10).     The 
subscriptions  to  the  first  Austrian  loan  amounted  to  $440,200,000. 
and  those  of  the  first  Hungarian  loan  to  $235,000,000. 

The  loans  were  not  limited  in  amount,  and  the  subscribers 
uere  permitted  to  pay  in  all  kinds  of  scrip.  As  in  Germany, 
w  ar  loan  offices  were  established  where  subscribers  could  borrow 
on  securities  in  order  to  obtain  money  with  which  to  subscribe 
to  the  national  war  loans.  The  Austro-Hungarian  Bank  and 
the  other  lanks  also  agreed  to  loan  subscribers  up  to  75  per  cent 
of  the  value  of  the  war  bonds.  In  this  fashion  that  part  of  the 
wealth  of  the  people  which  was  locked  up  in  securities  was  ren- 
dered li(iuid  and  was  directed  into  the  state  Treasury. 

lO  Schneider.  Die  Krcigsfinanzen  der  europaischen  Grossmachte.  loc.  cit., 
p.  272. 


^jR 


r  Ij 


2M) 


DIRKCr   AND  INHIKKIT   COSTS  OK    rilK   WAR 


Banking  and  Currency,  1915 


The  Austro-Hunffariaii  iM)lk'v  of  tinancinK  the  war  was 
clearly  modeled  upon  that  of  her  aggressive  ally,  Germany,  and 
this  was  seen  not  merely  in  the  loans  but  also  in  the  issues  of 
bank  notes.  As  deposit  banking  was  Init  slightly  developed  in 
the  Dual  F:mi>ire  the  exttiision  of  bank  credit  took  the  form 
almost  exclusively  of  increased  note  issues.  This  is  shown  by 
noting  the  slight  increase  of  deptisits  as  compared  with  the  enor- 
mous expansion  of  note  issues.  The  issue  of  lank  notes  stcxxl 
at  $423.«0().(XK)  on  July  _\^.  1914;  by  the  end  of  1914  they  had 
rifen  to  $1.02;..'(X),IXX):  and  by  the  end  of  1913  to  $1,432,400.- 
(KX).  lixcuses  were  found  for  these  additions  to  the  circulating 
medium,  first  in  the  increased  activities  of  the  government  and 
the  need  of  additional  notes  to  take  the  place  of  hoarded  gold. 
In  1915  it  was  asserted  that  more  notes  were  needed  for  circula- 
tion in  the  conciuered  territories  of  Poland  and  Serbia.  In 
unrmal  times  the  Austro-Hungarian  Bank  had  issued  its  notes 
on  a  gold  cover  or  against  a  discount  of  commercial  bills.  After 
the  outbreak  of  the  war,  however,  commercial  bills  almost  dis- 
appeared from  the  market  and  in  their  place  Treasury  bills  and 
other  securities  accumulated  in  the  portfoli(»  of  the  bank.  An 
increasing  proportion  oi  the  notes  was  issued  against  such 
securities,  while  the  proportion  of  the  gold  cover  steadily  de- 
creased. At  the  end  of  1913  the  gold  reserve  was  49.7  per  cent ; 
a  year  later  it  was  22.9  per  cent;  and  at  the  end  of  1915  it  had 
sunk  to  9.4  per  cent. 

As  a  result  of  these  successive  note  issues,  the  value  of  the 
crown  depreciated  greatly.  At  the  end  of  December.  1915.  Aus- 
trian paper  money  showed  a  depreciation  in  Zurich  of  41  per 
cent;  in  Amsterdam  of  52  per  cen.,  and  in  New  York  of  44  per 
cent.  At  the  same  time  the  cost  of  living  rose  by  leaps  and 
ixMuids.  A  report  of  the  Vienna  Board  of  Trade  showed  that 
in  July,  1915,  prices  were  86  per  cent  higher  than  they  had  lieen 
a  year  previous. 


Ii 


.\ust«ia-hun«;aky 


241 


HOKHOWINCS,    l'>15 

Ihe  secoiul  Austrian  war  loan  was  lu-atcd  in  May,  1915,  and 
the  second  Hungarian  loan  in  June,  1915.     The  Austrian  loan 
was  issicd  in  the  form  of  a  6  per  cent  rente  due  in  1921  issuetl 
at  95.25.     Subscrifrtions  amountetl  to  $556,000,000.     The  sec- 
imd  Hungarian  loan  was  in  two  forms:  (1)  a  6  per  cent  rente 
issued  at  98.  and  (2)  a  5>^  per  cent  a  year  bond  issued  at  91.20. 
Subscriptions  amounted  to  $226.507 ,aX).     In  floating  these  loans 
the  Austrian  state  relied,  as  it  had  done  in  times  of  peace,  exclu- 
sively  upon   the   .\ustrian   consortium   or   syndicate   for   state 
finance  transactions.     The  banks,  together  with  the  |)ostal  sav- 
ings banks,  and  the  house  of  S.  M.  von  Rothschild  lieiongcd  to 
this  syndicate,  which  represented  a  total  capital  of  more  than 
$1,400,000,000  and  had  an  organization  for  placing  loans  and 
investmen:    ,ecurities  which  embraced  the  whole  Empire.     An- 
other syndicate,  the  equal  of  the  above  in  capital  and  in  the  ability 
to  place  loans,  consisting  of  the  Rothschild  group  and  the  promi- 
nent Austrian  and  Hungarian  banks,  was  utilized  by  the  Hun- 
garian Minister  of  linance  for  negotiation  of  the  loans  of  that 
kingdom.     In  addition  to  the  government  loans  there  was  bor- 
rowed in  June  a  seccMid  loan  from  (lerman  Irankers  amountinjj: 
to  $76,250,000.     In  November  of  the  same  year  a  third  loan  was 
made  by  the  G'^rman  banks,  this  time  of  $75,000,000.     Hoth  of 
these  were  secured  by  one  year  Treasury  bills  at  6  per  cent. 

In  October,  according  to  schedule,  the  third  Austrian  loan 
was  issued.  This  was  a,  S'/i  per  cent  bond  redeemable  in  1930 
and  issued  at  93.60.  Subscriptions  to  this  loan  amounted  to 
$840,520,000  The  third  Hungarian  loan  which  was  floated  at 
the  same  time  was  the  familiar  6  per  cent  rente  issued  at  98,  re- 
deemable in  1921.  and  lironght  in  sulwcriirtions  of  $3%,972.0(>1. 

Banking  and  Currency.  1916 

The  increase  in  the  note  circulation  continued  throughout  the 
year  1916,  and  by  the  end  of  that  year  amounted  to  $2,178.- 
000.000.      Bv  this  time  advances  to  the  .\ustrian  Govemment 


!   i 

II 


■if 


H 


V 


M2 


DIKKCT   AM)  IXniKKlT  COSTS  OF  THE   WAR 


Stood  at  $735,700,(XK)  and  to  the  Hungarian  at  $324,300,000, 
classified  as  "floatinjj."  Othor  advances  on  war  stoi'ks  stood  at 
S^)85,650,(X)0,  and  "hills  discoinUcd."  wiiicli  were  in  fact  Treas- 
ury bills,  stood  at  $5*»5.4(H).OOe>.  T!ie  sanie  bank  statement 
shows  gold  reserve  t<>  l)e  S38,(XX),CX)().  The  ratio  of  gold  to  notes 
was  now  2.8  per  cent. 


Exi'K.Noni  KEs,  1916 

The  average  monthly  expenditures,  which  had  l»cen  estimated 
for  the  first  two  years  of  the  war  at  $204,000.(XX),  rose  during 
the  first  half  of  1916  to  $214,000.(XX).  Cowing  to  the  complete 
breakdown  of  ordinary  budgetar>-  procedure  and  the  fact  that 
no  budget  was  presented  during  these  >ears,  and  finally  to  the 
strict  censorship  upon  all  such  information,  it  is  impossible  to 
secure  data,  other  than  that  expenditure  rose  from  $2,141,169,- 
4(X)  to  $3,145.194,(X)0  for  Austria  alone. 


vi: 


I'   1 


UoKKOWlMlS.    1916 

The  fourth  .\ustrian  loan  was  otYered  fm  /oscrijrtion  in  May, 
19|6  For  the  first  time  the  sul)scril)er  was  given  a  choice  oi 
security,  the  first  form  Iwing  a  3!  j  \yeT  cent  40  year  Innid  issued 
at  95.5,  and  the  second  being  a  5'/j  |)er  cent  Treasury  bill  repay- 
able at  par  in  June,  1923,  issuetl  at  93.  The  subscriptions  to  the 
first  form  aggregated  S467.8(X).(KK),  and  to  the  second  $425.- 
4(X),000.  The  equality  of  subscriptions  in  the  two  forms  of 
issue  showed  considerable  skill  in  gauging  the  market.  The 
same  financial  methods  were  followed  in  floating  this  loan  as  had 
l)een  jjursued  in  Germany.  The  Imperial  I'ank  agreed  to  accept 
the  war  bonds  as  collateral  up  to  75  [kt  cent  of  their  nominal 
\alue  on  loans  made  for  the  purpose  of  purchasing  lx>nds  of  the 
new  issue.  The  rate  of  interest  on  such  loans  was  fixed  at  5 
|)er  cent  for  five  years — that  is  to  say,  in  order  to  subscribe  for 
a  l)ond  of  $200  which  at  93  would  cost  $186,  the  subscrilier 
could  Ixjrrow  $150  from  the  Iwnk  or  from  one  of  the  war  loan 
offices,  so  that  he  would  have  to  lav  out  onlv  $36  of  his  own 


■il 


AUSTRIA-HUNr.ARY 


243 


cash.  The  annual  expen^^e  of  his  borrowings  would  be  $7.5U, 
while  the  incoiiie  on  his  new  investment  would  bring  him  $11  a 
year,  yielding  him  an  annual  net  income  on  the  investment  of 
$3.50,  or  practically  10  per  cent  on  his  actual  outlay.  This 
method  of  financing,  while  it  may  have  swelled  subscription  lists 
to  the  various  war  loans,  making  them  appear  popular,  really 
threw  the  whole  burden  upon  the  banks,  which  met  the  cost  by 
fresh  issues  of  notes.  It  was  the  frankest,  not  to  say  the  rankest, 
kind  of  inflation.  Certainly  such  a  plan  did  not  induce  thrift 
on  the  part  of  the  people,  nor  secure  the  payment  of  the  costs  of 
the  war  out  of  savings. 

The  Hungarian  loan  of  this  same  date  consisted  of  6  i)er  cent 
consols  or  rente,  not  redeemable  before  November  1.  1^21.  issued 
at  97.20.  .\s  in  the  case  of  the  Austrian  loon,  an  alternative 
was  given  in  the  form  of  a  5K'  ?^^  <;ent  Treasury  bond  irredeem- 
able before  June  1.  1926,  issued  at  91.90.  It  is  not  possible  to 
give  the  subscriptions  to  each  form  separately,  but  the  aggregate 
for  both  amounted  to  $386,000,000. 

In  November  a  fifth  loan  was  brought  out  by  .Austria  and 
by  Hungary.  Like  the  previous  one,  the  Austrian  loan  con- 
sisted of  two  forms:  (a)  a  SVi  per  cent  40  year  bond  issuetl  at 
92.50.  and  (b)  a  5^^  per  cent  Treasury  bill  due  June  1.  1923. 
issued  at  96.50.  The  total  subscriptions  for  both  issues  were 
$892,922,000. 

Similarly,  the  fifth  Hungarian  loan  was  issued  in  the  same 
form  as  its  predecessor,  there  being  (a)  a  S^-  per  cent  bond 
redeemable  in  1922  and  payable  in  1942  (a  6-26  year  bond) 
issued  at  96.25.  and  (b)  a  6  per  cent  rente  issued  at  98.  Sub- 
scriptions to  this  loan  totaled  $405,000,000. 

The  loan  transactions  of  the  Austrian  government  down  to 
the  middle  of  the  year  1916  were  summK.ized  in  an  official  re- 
port of  the  National  Debt  Committee  of  the  Austrian  Reichsrat. 
published  January  31.  1917.  The  following  summary  table  is 
taken  from  this  report : 


) ,. 

•i  »• 


I  I' 


J44  DIRKCT   ANU  INDIREIT  COSTS  1)F  TJIE   WAR 

DEBT  OF  AUSTRIA  JUNE  30,  1916 

Discounts  and  advances  with  the  Imperial  Bank ^'"ftl'i^'i^ 

Debt  to  Austrian  Banking  Syndicate 52*  ooe  7^^ 

Debt  to  German  Banking  Syndicate ^«^'ii^ 

First  War  Loan  S-year  Treasury  bills ^ViS'iJn 

Second  War  Loan  10-year  Treasury  bills 32t1'S! 

Third  War  Loan  IS-year  Treasury  bills sS'nwSn 

Fourth  War  Loan  4(I-year  i  ompulsory  bond •AM.uae.luu 

Total  on  June  30.  M6 $4,910,500,487 

Debt  on  December  31,  '<*15 2.820.000,000 

Increase  for  first  half  of  1916 $2,090,500,487 

A  sul>se(|ucnt  reiJort  of  the  Austrian  Natiotial  Debt  Coinmis- 
sion  for  the  half  year  ending  December  31.  1916.  shows  that  by 
that  time  the  total  .Austrian  war  debt  had  risen  to  $6,277,800,000. 
At  this  same  date  the  Hungarian  war  debt  had  risen  to  $3,593.- 
()0().(KX).  jjiving  a  total  war  debt  for  the  Dual  Monarchy,  ac- 
cording to  their  cfficial  report,  of  $9,870,800,000.  or  an  average 
.)f  $340,400,000  per  month  for  the  first  twenty-nine  months. 


li 


Banking  and  Currency,  1917 

The  note  issues,  which  had  been  increasing  at  a  prc^ressive 
rate,  showed  a  still  sharper  upward  movement  for  the  year  191 7. 
.\t  the  end  of  1916  they  had  stood  at  $2,178,000,000.  but  by 
the  end  of  1917  they  had  mounted  to  $3,688,000,000.  The  mad 
dance  of  inflation  was  beccmiing  faster  and  faster.  At  the  same 
time  the  gold  cover  was  becoming  smaller  and  smaller,  and  at 
the  end  of  1917  stood  at  $57,020,000,  the  ratio  of  gol'.  to  notes 
then  being  1.6  per  cent.  By  this  time  the  .\ustrian  note  was 
practically  nothing  more  than  a  state  issue  of  inconvertible  paper 
money.  The  following  bonk  statements,  comprising  the  last  one 
published  before  the  outbreak  of  war,  and  the  first  one  pub- 
lished subsequent  to  that  event,  show  the  changes  which  had 
taken  place  in  the  condition  of  the  bonk.  There  is  shown  here 
\  ery  clearly  the  extent  to  which  the  bank  was  being  used  by  the 
government  to  finance  its  war  operations : 


AUSTRIA-HUNGARY  245 

IMPERIAL  AUSTRO-HUNGARIAN  BANK 

1914  1917 

Assets  Ju'x  23  Dec.  7 

Cold  coin  and  bullion ^V^^  *gffioOO 

Bills  and  foreign  notes 12.000.000  J2£;SS5 

Silver  and  token  coins 58.273,600  iu,.WB,yw 

Total $317,849,400  $75326.400 

Notcf  of  war  loan  banks ,.V^;j^  Sl'S^^m 

Discounted  bills,  warrants,  etc '^i'^S^SSS  Sl'^'SS 

Loans  on  security 37.305.200  ,  SS'sS'SS 

Loans  to  Austrian  Government "oii'SS'ivK 

Loans  to  Hungarian  Government \y,^iJ^  l2nm'oOO 

f^J^r '"'"" ::::::::::::::::::::  '©.SS       SiSSSS 

MoSis 59.998,800  58.465.000 

Othef^sets' ::::::... 23,058.400  176.380,400 

Liabilities 

Share  capiUl  42.000,000  4?,000,000 

Rrvrrve  funds             6,432,000  8,184.4L'0 

NotM                                       431.951.800  3,548,031,600 

Current  acwunts':;;! 58.254,400  418,562.600 

MoSe  S               ..       58.253.600  55258,200 

othT«abS  :::::::: 16.410.000       174.378,600 

The  metallic  reserve  had  all  but  melted  away.     The  disap- 
pearance of  the  gold  was     wiously  the  result  of  its  utilization, 
either  directly  or  indirectly,  by  the  German  Reichsbank,  though 
a  cleaner  sweep  could  hardly  have  been  made  if  the  bank  had 
been  looted  outright.     The  decline  in  the  silver  followed  the 
policy  in  the  first  year  of  the  war  of  putting  into  circulation  as 
much  as  possible.     On  the  other  hand,  the  holdings  of  notes  and 
loans  to  the  government  show  an  enormous  expansion.     The 
loans  to  the  Austrian  and  Hungarian  Governments  amounted  to 
over  $2,600,000,000.    To  these  may  safely  be  added  the  "Loans 
on  Securities."  as  these  were  doubtless  loans  upon  war  bonds  to 
permit  borrowers  to  make  subscriptions.     It  is  impossible  to  say 
how  much  of  the  item  "Discount  of  bills  and  warrants,  etc." 
was  on  private  account  and  how  much  for  the  government,  but 
it  is  safe  to  say  that  practically  all  were  Treasury  bills.     The 
solvency  of  the  bank  was  clearly  dependent  upon  that  of  the  Dual 
Empire  itself,  and  with  the  collapse  of  the  latter,  that  of  the 
liank  itself  will  be  almost  inevitable. 


_'4r> 


IIIKKIT   AM)  INDIKECr  COSTS  OK  THE   WAR 


tj-f-    * 


|i 


i  ; 


EXPENHITURES,   1917 

During  the  first  three  years  of  the  war  the  constitutional  pro- 
visicMis  conceining  the  jxissage  ..f  the  budget  were  practically 
disregarded.     But  in  July,  1917,  the  lower  house  of  the  Austrian 
Parliament  in  passing  the  provisional  budget  asked  for  by  the 
government,  insisted  upon  fixing  a  maximum  limit  of  $1,200.- 
IKX\000  instead  of  t*-  ving  the  amount  indefinite.     Until  this 
time  they  had  simp'     ^sscd  a  l)lind  vote  of  credit,  the  money 
lieing  raised  and  expended  at  the  discretion  of  the  executive 
branch  alone.     Now  the  House  insisted  that  future  estimates 
must  show  the  war  exjienditures  .separately  from  the  civil  budget, 
and  that  a  real  effort  must  be  made  to  cover  the  latter  by  means 
of  taxes  and  other  revenue,     .\lthough  new  taxes  had  been  in- 
tHHluced  since  the  outln-eak  of  the  war  with  a  resulting  total 
annual  increase  in  revenue  of  $150,000,000,  it  was  brought  out 
(hiring  the  delate  that  previously  existing  taxes  showed  a  deficit 
..f  $30(),(X)0.(XK).     The  measures  which  had  been  introduced  up 
tn  this  time  were  c.  ^ractcrizeu  as  "inadequate,  unfair  and  in- 
clifective."      The  period  of  the  budget  was  fixed  at  six  months, 
thus  forcing  the  government  to  state  its  needs  at  frequent  inter- 
vals and  to  subject  them  to  some  sort  of  scrutiny.     The  $l,2lX).- 
(XK).00()  \oted  at  this  time  were  estimated  for  the  next  four 
months,  or  a  monthly  expenditure  of  about  $300,000,000.  of 
which  $180.0a).000  were  for  military  expenses,  $35,000,000  for 
separation  allowances,  and  $80,000,000  for  other  forms  of  relief 
and  unforeseen  contingencies.     This  amount  would  Ijc  raised  by 
loans.     The  sums  needed  for  the  civil  budget  were  to  be  secureil 
from  revenues. 

The  budget  for  1917-18  was  i)resented  by  the  Austrian  Finance 
.Minister  to  the  lower  house  of  Parliament  in  October,  showing 
estimated  total  exi)enditure  of  $4,433,800,000.  and  estimated 
1  c\  enues  of  $778,000,000.  The  resulting  deficit  would  therefore 
amount  to  slightly  over  $3.6(X).00<».000.  and  to  meet  this  le 
government  asked  authority  to  raise  credits  of  that  amount.  It 
was  stated  by  the  Finance  Minister  that  the  total  war  exiwndi- 


AITSTRIA-HIXCARY 


247 


tures  of  Austria  for  the  first  three  years  of  war  was  $5,578,600,- 
000.  l':xpenses  for  the  fimrth  year  were  estimated  at  $2,400,- 
000.000,  or  half  of  the  suin  needed  for  the  first  three  years. 

In  October  the  Budget  Committee  passed  a  provisional  six 
months'  budget,  including  an  authorization  to  the  government  to 
raise  war  credits  up  to  $1,800,000,000.  The  mounting  costs  of 
the  war  were  evidently  creating  constemati<ni  in  Vienna,  for 
Baron  von  Plener.  the  Finance  Minister,  deplored  the  fact  that 
they  had  not,  like  England,  been  able  to  raise  by  taxation  enough 
to  meet  their  civil  expenditures  and  pay  the  interest  on  the  war 
loan,  let  alone  make  any  contribution  to  the  expenditures  of  the 
war  itself.  The  note  circulation,  ^c  said,  constituted  another 
verv  disquieting  element  of  the  financial  situation.  It  had 
already  a  total  much  higher  than  anyone  had  estimated,  and  as  a 
result  Austria  would  long  have  to  suffer  from  a  low  rate  of 
exchange  and  from  a  depreciated  money.  If  the  war  lasted  until 
the  end  of  June.  1^)18,  he  estimated  that  Austria's  share  in  the 
war  expenditure  would  amount  to  $12,000.000,(XX). 

A  similar  note  of  distress  was  noticeable  in  the  budget  speech 
of  Premier  Wekerle  in  introducing  the  budget  for  1917-18  into 
the  Hungarian  lower  house.  The  total  war  expenditure  up  to 
the  present  he  estimated  at  $3,500,000,000,  of  which  $2,4a).- 
000.000  had  been  raised  by  loans.  The  interest  on  the  whole 
state  debt  was  $206,000,000  annually.  The  premier  said  he  esti- 
mated receipts  at  $700,000,000,  which  he  claimed  were  sufficient 
to  meet  the  civil  budget  and  the  interest  on  the  debt  and  leave  a 
surplus  of  some  $5,000,000. 

Borrow  I  Nf.s.  191" 

It  is  evident  from  the  Imdget  statements  made  in  Austria  ami 
in  Hungary  that  the  whole  of  the  war  expenditure  in  these  coun- 
tries would  have  to  l)e  defrayed  out  of  loans.  Accordingly,  in 
Mav  each  country  issued  its  sixth  war  loan.  Austria's  was  in 
alternate  form :  First,  a  ?  '/•  per  cent  bond  redeemable  by  drawings 
lietween  1923  and  1927.  issued  at  the  nominal  price  of  92.5. 
This  price  was  reduced,  however,  by  the  granting  of  a  "commis- 


,  ! 


_'4K 


niRKtr   AM)   INDIUKCT   IdSTS  OK    INK   WAR 


I  ■I 


siou"  and  by  making  the  interest  payable  as  from  April  1st,  thus 
makinjf  the  real  price  to  the  purchaser  alxtut  91.5  and  the  yield 
l>et\veen  7.29  and  <>  per  cent  accordinj;  to  date  of  retlemption. 
The  second  form  into  which  the  loan  was  thrown  was  a  3;/' 
per  cent  l)ond  in  denominations  of  $200  and  upward,  payable 
at  ]:ar  in  \927  or  earlier.  The  price  was  fixed  at  94  less  '/j 
\>vr  cent  commission,  at  which  rate  the  yield  was  6.4  per  cent. 

The  Hungarian  was  issued  in  the  form  of  a  6  per  cent  rente 
redeemable  at  the  option  of  the  government  on  or  after  August 
1.  1^22,  the  issue  price  varying  from  96  to  96.8,  according  to 
the  date  of  payment,  with  the  usual  •/.  per  cent  deduction  for 
"commission." 

The  subscriptions  to  the  .\ustrian  sixth  loan  reached  $1,073,- 
000,000,  which  exceeded  any  previous  loan,  even  the  fourth — 
theretofore  the  most  successful.  The  increase  in  sulwcriptions 
was  reported  to  have  come  almost  entirely  from  Vienna,  sulv 
scriptions  from  the  provinces  being  on  the  whole  distinctly  lower 
than  Iwfore.  This  would  seem  to  indicate  that  a  larger  pro- 
portion was  being  taken  up  by  the  banks  and  the  larger  estalj- 
lishments.  Sul)scri])ti<>ns  to  the  sixth  Hungarian  loan  were 
.S50(),000.000. 

The  seventh  .\ustrian  loan  was  oflfered  according  to  schedule 
in  Xoveml)er.  Like  the  previous  one,  it  was  issued  in  two 
forms:  (a)  a  3'/.  per  cent  tax-free  bond  redeemable  at  par  by 
drawings  between  the  years  1923  and  1957  with  an  opticm  to  the 
state  to  increase  the  rate  of  redemption  from  1927  on,  or  to  pay 
off  from  that  date  on  three  months"  notice.  The  price  was  92.5 
less  I'/S  per  cent  commission,  making  a  net  price  of  91,  t(»  which 
was  added  as  a  lionus  one  month's  additional  interest,  as  in  the 
case  of  the  prior  loan,  (b)  .\  5j/i  per  cent  bond  redeemable  at 
l>ar  in  1926  or  earlier  on  three  months'  notice,  the  price  of  which 
was  94.5  less  the  lyi  per  cent  commission. 

Similarly,  the  Hungarian  Government  offered  alternative  in- 
vestments under  its  seventh  war  loan.  This  involved  a  departure 
from  its  procedure  at  the  time  of  the  sixth  loan,  when  only  6  per 
cent  rente  was  offered.     .\t  this  time  the  subscril>er  was  oflfered 


ArSTRIA-HUNr.ARY  249 

the  familiar  6  per  cent  rente  convertible  at  the  option  of  the 
government  in  1922  at  96.1.  at  which  rate  it  yielded  about  6.3 
per  cent.  In  addition  to  this  he  was  given  the  alternative  choice 
of  a  5 J/^  per  cent  rente  at  91.25  not  convertible  before  May. 
1925.  This  investment  yielded  6.15  per  cent.  It  was  anticipated 
that  the  5>^  per  cent  security  would  be  preferred  by  the  large 
investor,  and  as  the  government  was  depending  so  largely  upon 
this  class  of  subscribers,  a  special  effort  was  now  made  to  meet 
his  desires.    Both  kind  of  securities  were  exempt  from  taxation. 

The  subscriptions  to  the  Austrian  loan  amounted  to  $1,117.- 
000.000.  and  to  the  Hungarian  to  $738,000,000. 

Additional  sums  were  also  raised  by  advances  from  the  .\ustro- 
Hungarian  Bank  and  by  advances  from  German  and  other  banks. 
On  June  30,  1917.  the  total  borrowings  of  the  Austrian  Govem- 
nxnt  stood  as  follows: 

War  loans         $4,645,800,000 

Advances  from  Austro-Hunganan  Bank f ^'S^'SSS 

Advances  from  oth«r  Austnan  banks 'iSt'SS'iK 

German  banks  aSS'Sn 

Other  foreign  banks b,431.ow 

Total  borrowing.  June  30.  1917 18.459360.000 

As  the  prewar  debt  amounted  to  $4,961,432,462,  this  brought 

the  total  debt  on  June  30,  1917.  up  to  $13,421,283,862.     The 

progress  of  the  war  debt  itself  may  be  seen  from  the  following 

comparison : 

AUSTRIAN  DEBT 

In  Millions  of  Dollars 

Date                                            War  Debt  Total  Debt 

End  of  1914                                       1.008  5,969.4 

1915  2,808  7769.4 

1916  6.277.8  11,2392 
1917,  June  30                        8,459.8  13.421.0 

Hungary  did  not  publish  its  debt  with  the  same  regularity  as 
.Austria  and  for  that  reason  it  is  not  available. 

Banking  and  Currency,  1918 

The  issue  of  bank  notes  continued  during  the  year  1918.  but  it 
seemed  as  though  the  more  that  were  issued  the  greater  was  the 


'1 


I 


II 


!  1.-= 

;•  i~ 


i 
I 


111 


I; 


1 

il 

Kii. 

_'50  DIKKCT    \NI>   INDIKKIT   lOSTS  OK    INK    WAR 

demand  for  more  cirodating  me<Uuni  aJi<l  tlie  more  pressing  the 
need  of  the  government  for  more  currency.  In  April  they  were 
$4.2~O.00O,0(X>:  in  Octulier  *?.()i5.(HX),0()():  in  DecemlH;r 
S" .210.25 3,000,  and  loan  oftice  notes  lieRinnini;  to  accunndatc  in 
the  Imperial  Bank  to  the  amonnt  of  $l..=102.'>.=^4,tXX)  in  Deccm- 
Ikt,  or  a  grand  total  of  .<S,714,«HX),(K;0.  the  ratio  ()f  gold  to  notes 
being  .OiXA.  \W  .\ovem))er  the  |K)litical  situation  had  lieconie  so 
de>|)erate  that  peoi>lc  were  hojirding  even  the  depreciated  hank 
notes  and  the  Austrian  (lovernment  announced  that  it  wcntid 
issue  temiH>rary  bank  notes  in  dencMuinations  of  25  ami  100 
kronen  to  meet  the  scarcity  in  currency  that  followed  the  general 
panic  in  that  country.  The  frightened  jK-ople  liad  made  runs 
on  the  banks  in  Austria  to  such  an  extent  that  the  available  su]>- 
ply  of  notes  had  lieen  completely  exhausted  and  iwyments  were 
made  in  war  loan  couixins  and  Treasury  bills.  The  depreciated 
currency  was  of  course  accomi^nied  by  a  rise  in  prices  whicli, 
by  the  end  of  the  year,  had  attained  heights  reminiscent  of  the 
days  of  the  I'rench  assujihUs.  The  following  prices  and  wages 
were  taken  from  the  \'cf>a=(rro.  the  chief  organ  of  the  Social 
DemtK-ratic  party  published  at   I'.uda|)cst.  November  12,   1''1S: 

I  OMMOUITIKS  \\  A(;KS 

1  liter  milk $  M  Driver.  i>er  day $6.00 

Cat)t>aKe.  per  head 5.67  Coal  sliovekr  3.00 

1  kilo  steak 4.00  (Irave  digger 8.00  tc.  lO.OO 

1  kilo  other  imar. 4.O0  Day  laborer 4.20 

Kxi'K.VUITLKES,    1918 

The  budget  for  1918-19  was  presented  to  tlie  lower  .\ustrian 
house  in  July.  The  estimated  expenditures  aggregated  S4.8()<).- 
400,000  for  all  war  needs  during  the  fiscal  year.  By  this  time 
the  interest  on  the  war  debt  alone  had  increased  to  $403,20*3,000. 
.\s  against  these  enormous  exi)enditures,  the  total  revenues  v.ere 
estimated  at  only  $973,200,000,  resulting  in  a  deficit  of  $3,893,- 
2(H),000  which  would  have  to  be  met  by  borrowing.  The  purely 
military  expenditures  of  .\ustria  for  the  first  four  years  of  the 
war  were  now  estimated  at  $7,726,600,000.      The  total  of  all 


\1'STRI.\-1IUN<5ARY 


'51 


war  credits  to  June  ^0  was  stated  to  Jje  $13,400,000,000.  For 
the  fifth  year  of  war  further  credits  of  $2,4O0,00O,0(X>  were 
asked.  A  i)rovisional  budget  was  passed  by  parliament  for  the 
ensuing  six  months,  authorizing  a  war  credit  of  $1,200,000,000, 
or  half  of  what  was  askeil  for  by  the  budget  for  the  year. 


Borrowings,  1918 

The  result  of  the  eighth  Austrian  loan  was  alK>ut  $l,K-'2,- 
600,000  while  the  result  of  the  eighth  Htingarian  loan  was  re- 
ported to  have  reached  the  high  record  total  of  $772,000.(XX). 
It  may  be  doubted,  however,  whether  in  view  of  the  subsequent 
political  and  economic  crash  in  the  Dual  lunpire  all  of  the  sul)- 
scriptions  were  realized.    It  was  reported  that  the  liank  of  Buda- 
pest had  sue<l  the  former  Emi)eror  Charles  for  $200.0CX).  the 
amount  of  his  subscription  to  the  eighth  loan,  which  he  refused 
to  pay.     Former  Mapsburg  archdukes  also  refused  to  pay  their 
subscriptions  to  the  loan.'     By  this  time  also  pyramiding  had 
made  war  loan  subscriptions  profitable  to  the  subscribers  and 
disastrous    to   financial   institutions   and   government,   and    the 
progress  of  inflation  made  the  purchasing  pt)wer  of  the  returns 
less  and  less.     Details  of  war  loans  are  given  in  the  foUowmg 
tables : 


WAR  LOANS  OF  AUSTRIA 


Loan  Date 
1  Nov.,  1914 
May,  1915 
Oct,  1915 
June,  1916 


2 

3 

4 


Dec,    1916 

May.  1917 
April,  1917 
Nov.,   1917 


8    May,  1918 


Character 

Bonds 

Bonds 

Bonds 

Treasury  notes 

Bonds 

Treasury  notes 

Bonds 

Treasury  notes 

Bonds 

Treasury  notes 

Bonds 


Amount 
Subscribed 
$440,149,400 
537,664,400 
840,520,000 
904,058,400 

892.922,000 

1.073,000.000 

1,117,000,000 

1.152,600,000 

$6,957,914,200 


Int. 
5.5 
5.5 
5.5 
5.5 
5.5 
5.5 
5.5 
5.5 
5.5 
5.5 
5.5 
5.5 


Issue 

Price 

97.5 

95.25 

93.60 

95.50 

93. 

96.50 

92.50 

94. 

92.50 

93. 

91. 


Optional 
Redemp- 
tion 
any  timt 


1926 

None 

1922 
any  time 

1923 
any  time 

1923 


Payable 
192(1 
1925 
1930 
1923 
1956 
1923 
1956 
1927 
1957 
1920 
1957 


I  Geneva  desp;itch  to  Thf  Hvt'ninn  Star  (WashinRton),  January  20,  1919. 


UIKKCl    AND  INDIKECT   COSTS  OK  THE   WAK 


WAR  LOAN'S  OF   HUNtJAKY 


Optional  Kc 

- 

:«sue 

detiiption 

l.ouii       Date 

Character       Amount 

ntenst 

Price 

Date 

Payable 

1 

Nov. 

1VI4 

Hoiids 

$2J5.067,4OU 

6 

97.30 

1919 

Not  fixed 

> 

May. 

1915 

Blind* 

».o,5()7,000 

(1 

98 

anv  time 

" 

ItlllC. 

1915 

Ron(l« 

5!.. 

9120 

1925 

•* 

.( 

Nnv.. 

1915 

Hondii 

396.972.000 

6 

98. 

1921 

•' 

4 

Ma>. 

19I(. 

Hond< 

J86.000.000 

6 

5', 

97.20 
91.911 

1921 
N'lini- 

192t. 

^^ 

\..v.. 

t9l(. 

RiiihU 

■4O5.000.000 

6 

5'.. 

98 
%.25 

1922 

Not  tixed 
1942 

f> 

Mav 

1917 

l<iiiid> 

5<)().000.()00 

(> 

•»> 

\'  U 

Not  fixed 

7 

I)«r. 

1917 

Blinds 

7.W.O0O.rtlO 

5'. 

6 

91.25 

<*..10 

1925 
1922 

H 

Jimr, 

1918 

Bunds 

772.000.000 

$.?  frfiS.>»6..U)0 

^1 


Taxation.  War  I'kkiod 

I'he  fiscal  system  of  the  Dual  Empire  was  unique  in  its  way. 
I'ertain  joint  affairs  were  administered  by  the  Dual  Empire,  such 
as  foreign  aiTairs,  military  and  naval  atTairs,  and  tinaiices  com- 
mon to  both.  To  meet  these  joint  expenditures,  which  in  the 
last  peace  year  amounted  to  $1 1 7, 100,000.  the  customs  duties  were 
assigned,  amounting  in  the  last  peace  year  to  $40,000,0<X),  antl 
the  balance  was  contributed  by  Austria  and  Hungary  on  a  basis 
of  63.6  and  36.4  per  cent,  respectively,  under  the  agreement  of 
extension  which  made  this  arrangement  effective  until  1917,  at 
which  time,  under  the  then  existing  necessities,  the  joint  parlia- 
ments continued  it  for  one  year  longer.  No  joint  loans  were  per- 
mittetl  to  be  contracted.  The  fiscal  year  in  Austria-Hungary 
was  the  calendar  year  until  Ueceutber  31,  1913,  when  it  was 
made  to  end  on  July  1  thereafter,  so  that  the  first  six  months  of 
1914  are  only  half  of  the  new  or  old  fiscal  year.  The  separate 
Empires  levied  their  own  revenues,  which  were  distinct  from  the 
Dual  Empire  revenues  to  which  each  contributed.  On  the  basis 
of  the  first  half  of  1914,  the  revenues  of  Austria  for  a  full  year 
were  §625,811,000,  and  those  of  Hungary  $444,360,000. 

The  Austria-Hungarian  policy  of  financing  the  war  was  sim- 
ilar to  Germany's  in  its  dependence  u|x>n  loans  and  advances 


.\fSTRIA-HL'N«iAKV 


253 


from  the  banks,  but  it  did  not  go  quite  so  far  as  did  Germany 
in  avoiding  recourse  to  taxation.  The  sentiment  was  never  so 
strong  in  Austria-Hungary  that  the  cost  of  the  war  would  be  met 
wholly  out  of  indemnities  levied  upon  a  conquered  country,  nor 
was  there  the  same  hope  or  likelihood  that  even  a  successful  war 
woultl  yield  them  the  profits  upon  which  Germany  counted.  .Ac- 
cordingly, even  at  this  early  stage  there  were  announced  thre** 
imperial  decrees  of  the  Austrian  Gosemment  raising  the  rates 
of  court  fees  and  the  duties  on  inheritancr.  The  new  rates  were 
not  to  come  into  force,  however,  until  January  1,  1916.  but  were 
cxpevted  to  then  yield  ab(3ut  $4,600,000. 

Many  increases  were  introduced  in  existing  taxes  in  both  King- 
doms during  the  year  1916.    The  main  source  of  direct  taxation 
in  Austria  had  long  been  the  personal  tax  law.    This  was  passed 
ill  1896  but  did  not  yield  any  returns  until  1898.     In  the  last 
year  under  the  old  system  (1897)  the  total  revenue  froni  direct 
taxation  had  amounted  to  only  $48,902,400.     In  1898  this  had 
risen  to  $69,7"6.6a>,  and  in  1913,  the  last  normal  year  before 
the  war.  it  was  $86,300,200.    In  the  spring  of  1914  the  personal 
tax  law  was  amended,  increasing  the  scale  of  the  income  tax. 
introducing  a  surtax,  and  imposing  a  tax  on  directors'  fees.     In 
pite  of  the  Russian  occupation  of  a  part  of  the  Empire,  the  yield 
tor  the  year  was  only  .slightly  less  than  it  had  been  the  previous 
year.  In  1915  it  actually  increased  to  $87,456,400.  In  1916  many 
increases  were  introduced.    A  surtax  of  100  per  cent  in  the  case 
of  first  and  second  classes  of  taxpayers,  and  of  60  per  cent  for 
the  third  and  fourth  classes  on  the  general  earnings  tax,  was  im- 
posed.   On  the  special  earnings  tax  there  was  an  increase  from 
a  minimum  of  20  per  cent  to  a  maximum  of  100  per  cent,  ac- 
cording to  profits.     Other  increases  were  even  greater;  on  the 
income  tax  up  to  120  per  cent;  on  directors'  fees  100  per  cent; 
on  land  revenue  80  per  cent;  on  interest  100  per  cent.    It  is  im- 
possible to  state  the  yield  from  these  various  increases,  but  if  it 
was  coranensurate  with  the  increase  in  rates,  it  should  have  re- 
sulted in  a  substantial  augmentation  of  the  tax  revenues. 

In  introducing  the  1917-18  budgets,  the  Ministers  of  both 


J54 


DIHKCI    AND  INIMKKCT  COSTS  OF  THK   WAR 


KingdcMiis  sounded  a  note  <>f  distress  in  the  matter  of  insufficiency 
of  revenues  to  nifet  current  civil  expenditure  and  growing  in- 
icresl  iliarmo.  A  proimxal  to  introduce  ati  imperial  income  tax 
was  rfjected.  The  yieUI  from  other  taxes  had  ncreased  in 
nominal  anumnt.  it  is  true,  hut  on  accjnmt  of  the  great  deprecia- 
tion in  the  vahic  of  paiK-r  money,  the  purchasing  ixnvcr  was  less. 
A  much  'leavicr  tax  program  was  outlined  for  this  yeiir.  esti- 
mated to  ..icrease  existing  revenues  hy  $420.0(K).(XXV — the  Aus- 
trian receipts  l»cing  estimat»<l  at  .$S38.816.40(\  ami  the  Hun- 
garians at  $8«>.V7S<V>('0.  Apparently  these  estimates  were 
wholly  artilicial.  The  actual  yield  of  taxation  in  neither  state 
has  e\er  hcen  made  jmblic  since  the  outbreak  of  war,  and  the 
Liidget  estimates  of  Hungary  for  1^16  and  1917  were  never 
ma«le  known.  Any  attempt  to  compute  the  revenues,  either  on 
the  estimates  made  puhlic.  or  njKMi  the  rates  of  taxation  actually 
levied,  would  l)e  based  so  far  upon  conjecture  as  to  have  prac- 
ticallv  no  value  as  statistics,  but  for  whatever  value  they  may 
ha\e  l)ased  on  budget  estimates,  they  are  given  as  follows: 


V  ■ 

■  I 


.\VST«1.\ 

Year  Kevcnu«« 

IVI.S $692,145,000 

IWi 641.847.600 

1917 777.528.600 

191« 8.18,816,400 


Hlxgakv 

Year  Ke»  cnues 

1915 $4i2*}l,400 

1916  ...   '401.000.000 

1917  *  536.000.000 

1918'     893,780.000 


N'lirmal  civil  cxiH-iuli- 
tiirc  •»  years.  1914. 
$(.2.\81 1.0(10 


$2,920,337,600 


2.5«)3,244.00u 
$217.09.1,600 


Normal  civil  expendi- 
ture 4  ycnrs  (1914, 
$444.360,000) 


$2,283,611,400 


1.777.444,000 
$506,167,400 

Tlien  were  no  l>u<lKet>  fur  HutiKury  during  1916  or  1917,  luit  these  figures 
lire  <>timareil  u|miii  a  i)rci|x)rtii)nate  increase  or  decrease  in  the  .\ustrian 
limlijet  estimates.     .Ml  otiier  figures  are  hudget  estitreites. 

In  ;mv  consitleration  <>i  iluse  luidget  estimates,  two  things 
must  l)e  Ixtrne  in  mind:  '  1  I  that  the  civil  luulgets  gteatly  in- 
creased during  the  war  j)eri<Kl.  and  (2)  that  the  estimatetl  re- 
ceipts are  so  artificial  that  it  is  highly  impnjlxable  that  they  were 
realized.     IJiit  as  these  figuro.  in  their  most  favorable  light,  show 


ArSTRIA-HTNilARV  23."> 

tliat  revenues  were  wholly  insufficient  durinK  the  war  jKiriod  to 
nieet  even  the  civil  burden,  it  is  fair  to  deduce  that  not  only  did 
lK.rr<.wing  wholly  meet  war  costs,  but  that  it  also  was  resorted 
to  in  order  to  meet  the  interest  charges  on  the  growing  war  ddit. 
An  illuminatiiiK  sidelight  on  official  recognition  of  the  depre- 
ciation of  the  currency  is  given  in  the  following  episode.  It  had 
Iwen  the  rule  that  all  import  duties  into  Austria  must  be  paid  in 
gold.  About  the  middle  of  1918.  however,  a  nwlification  was 
made  in  this  provision— for  every  10  kronen  iwid  in  gold.  25 
might  be  jraid  in  notc<.  This  official  atlmission  of  150  |)er  cent 
tlepreciation  was  commented  uiK>n  with  much  bitterness  in  the 
Austrian  press,  anil  at  the  same  time  doubt  was  expressed  as  to 
whether  this  official  estimate  went  far  enough.  By  the  end  of 
the  year  a  complete  financial  collai>sc  had  taken  place,  and  there 
was  widespread  bankruptcy  throughout  the  country.  The  re- 
tail trade  in  N'ieima  was  ruined,  and  panic  permeated  all  eco- 
nomic actixiiies.     Prices  were  fantastic  and  trade  had  liecome  a 

•gamble. 

As  the  costs  of  the  war  to  Austria-Hunir-iry  may  therefore  be 
measured  by  her  lK)rrowings  and  the  increase  in  her  debt,  it  may 
lit  summeu  up  as  ff>llows: 

Form  t.f  Borrowing                           Austria  Hungary 

Swartoans      $6,957.914200  ^^•^•5i!$'i!J' 

Au'.'JIcrH^lnKari.n  .«nW  advances    .}S«>.000.000  H?2^^ 

Advance,,  other   bank,..   2.MO,000.000  mS'SS'S 

Treasury  notes  discounted ^S^'SSS  "mOOO'oOO 

Foreign  loans   8,500,000  j«i,WJ,wu 

'$12,806,414200  ($a0.622,960,«)0)  $7,815,546,400 

Prewar   debt 2.624.711,900  1,338.348.000 

$15,431,126,100  $9,153«>4,400 

"•'■-""• -•"■^  at «K  '•"""""="•  :*ISlffi 

9  6:::;:::.:  6277.800.000  i^^'iS^ 

1917     8.459.600,000  ^'^'i^l'^SS 

1918.::::....  12,806,414200  9,i53«)4.4oo 

*  Funded  only. 


li 


P 

I 


I 


11. ,  I 


'■  • 


I- I 


m 


TURKEY 

Regular  Inulgets  were  unknown  in  Turkey  i>e*ore  the  reform 
ot  thw  Constitution  in  1008,  but  though  the  form  of  regularity 
was  given  to  the  financial  procedure,  deficits  still  continued  to  be 
the  rule.  The  public  debt  was  in  part  controlled  by  a  board  of 
representatives  of  foreign  countries  and  certain  revenues  for  in- 
terest and  amortization  were  pledged  to  this  board.  The  Gov- 
ernment and  Parliament  of  Turkey  could  not,  independently,  in- 
troduce new  taxes  or  increase  old  ones.  I-'or  this  the  consent  of 
the  Cireat  Towers  was  necessary.  The  country  had  no  central 
liank  of  its  own.  The  Ottoman  Bank  was  the  only  Turkish  bank 
of  issue,  and  was  under  the  direction  of  French  and  English  ad- 
ministrators. In  many  respects,  therefore,  Turkey  was  not  finan- 
lially  in<lei)endcnl.  Had  as  ha<l  lieen  the  finances  of  Turkey, 
they  were  made  still  worse  as  a  result  of  the  Tripoli  and  Balkan 
wars  which  greatly  added  to  the  public  debt.  In  the  financial 
\ear  March  1.  l''LV  to  February  28,  1914,  the  receipts  were 
.«^i70,lXX).0(X).  leaving  a  deficit  of  $83,3lX),000.  That  for  the 
previous  year  had  liwn  SI. 202,000,000. 

The  fimdcd  (!el)t  amounted  in  March,  1912,  before  the  Balkan 
war,  to  S5''4,82t>.lS8.  while  the  floating  dek  was  about  Sid,- 
<)0<>.0(X1  more,  .\■e\^  lf)ans  of  considerable  amount  were  raised 
to  finance  the  struggle.  My  a  curious  stroke  of  irony,  l-'ranc*- 
supplied  the  needs  of  Turkey  in  the  .spring  of  1914  with  a  loan 
of  SUjO.OOO.OOO.  This  was  a  .=;  i»er  cent  loan  issued  at  88.  The 
first  instalment  of  the  amount.  $'>9,000,000,  had  actually  been 
l>aid  over  before  the  »'ntl>reak  of  war  on  August  1,  1914,  and  part 
■  if  the  proceeds  of  tliis  were  undoubtedly  used  against  France 
itself.  The  total  tundcd  del»t  immediately  before  the  beginning 
I'f  the  luirojjean  war  ai)|)ears  to  have  amounted  to  $682,515,000. 
Of  this  sum  abcuit  62  per  cent  was  held  by  French,  29  per  cent 
l)y  (ierman.  and  the  balance  by  English  creditors — in  fact,  so 
i,'reat  was  the  predominance  of  I'rench  interest  that  t\i  interest 
of  the  [Hiblif  debt  bad  Iteen  made  payable  in  Paris. 


TURKEY 


257 


Turkey  entered  the  war  at  the  end  of  October,  1914.  Pay- 
ment of  interest  on  her  foreign  debt  was  at  once  transferred  fron» 
Paris  to  Constantinople,  and  that  to  citizens  of  enemy  powers 
was  stopped.  This  meant  a  suspension  of  almost  three  quarters 
of  the  debt  payment.  The  Ottoman  Bank  was  placed  under 
Turkish  control  and  the  administration  of  taxes,  paper  money, 
and  other  financial  operations  were  taken  up  independently  by 
the  Turkish  Government.  The  war  expenses  have  been  borne 
chiefly  by  the  German  Government,  but  Turkey  itself  has  also 
raised  funds  through  requisitions,  bank  advances,  the  issue  of 
paixjr  money,  and  taxation,  especially  the  increase  of  customs 
duties. 

The  war  expenditures  of  Turkey  can  only  be  estimated,  as  no 
official  statements  have  been  published.  As  a  guide,  however, 
the  credits  voted  to  the  Turkish  war  office  may  be  taken,  al- 
though it  is  quite  certain  that  the  actual  expenditures  far  ex- 
ceeded these  sums.  In  the  financial  year  ending  February  28, 
1915.  which  therefore  included  only  five  months  of  actual  war- 
fare, the  credits  for  the  army  and  navy  amounted  to  $112,- 
950,000.  For  the  next  year  military  credits  amounted  to 
$148,950,000. 

To  meet  these  expenditures,  the  government  first  of  all  bor- 
rowed from  its  own  central  bank,  following  in  this  respect  the 
example  of  the  more  independent  European  Powers.  In  Septem- 
ber. 1914.  it  secured  from  the  Ottoman  Bank  for  discoimted 
Treasur>  bills  $22,500,000;  and  in  January.  1915,  another 
$9,000,000  by  granting  an  extension  of  the  privilege  to  issue 
hank  notes.  Ehiring  the  year  1915,  three  loans  were  obtained 
from  (rtinnany  and  Austria.  The  total  loan  operations  are  shown 
in  the  following  table: 

BORROWINGS  OF  TURKEY,  1914-1915 

Form  Date  Amount 

Advances  from  Ottoman  Bank September.    1914 ^^^ 

Advance*  from  Ottoman  Bank 1*"^*7a, c'*'' mSSnnS 

Loans  from  Germany  and  Austria July,   1915. •'x-S^SS 

November.  1915 9,u00,0UO 

December.    1915 90.000,000 

$161,100,000 


II 


■'i 

;    '> 

'  •     "'V 


258 


DIRIXT  AXI)  INDIRECT  COSTS  OF  THE  WAR 


Hi 


The  Turkish  Government  also  made  use  of  its  new  found 
liberty  in  the  matter  of  taxation.  The  customs  duties  were  in- 
creasetl  Septeml)er  20,  1914,  In  4  per  cent,  raising  them  to  a  rate 
of  about  12  to  15  per  cent.  A  year  later,  in  July,  1915.  there 
was  a  horizontal  increase  in  all  import  duties,  bringing  the  rates 
up  to  30  i)er  cent.  In  the  following  year  the  Chamber  authorized 
the  government  to  impose  new  excise  taxation  on  sugar,  cigarette 
paper,  matches  playing  cards,  oil.  tea,  and  coffee.  The  license 
tax  was  also  extended  to  aliens— a  thing  which  had  been  forbid- 
den under  the  "Capitulations."  The  yield  from  these  taxes  was 
estimated  by  the  Minister  of  Finance  at  $13,500,000  per  annum, 
but  it  is  unlikely  that  these  amounts  were  realized. 

In  his  budget  speech  of  February  10.  1916.  Talaat  Bey.  the 
Turkish  Minister  of  Finance,  stated  to  the  Chamber  that  the  total 
expenditures    for  the   fi-scal   year  ending   February   28,   1916, 
amounted  to  $279,000,000.     Against  this  sum  he  set  ordmar>- 
re venues  of  $94,300,000.  and  extraordinary  revenues,  consistmg 
of  advances  from  the  Central  Powers,  of  $155,250,000,  or  a 
total  of  $249,750,000.    This  would  give  a  deficit  of  $29,250,000. 
It  will  lie  seen  from  this  statement  that  the  ordinary  revenues 
were  $4S  OCO.CXX)  less  than  those  of  two  years  previous.     The 
ex,«nditures  were  only  alx,ut  $54,000,000  more  than  those  of 
the  last  peace  vear.  l)ut  it  must  be  rememliered  that  about  $31.- 
=;00,000  was  lieing  saved  on  interest  payments.     After  making 
allowance  for  ordinary  civil  expenditures,  the  cost  of  the  war 
to  Turkey  may  be  estimated  for  the  first  two  years  at  about 

$225,000,000. 

During  the  vear  1917  the  dependence  of  Turkey  u[ycm  her 
stronger  allv.  Germany,  became  so  great  as  to  am-unt  practically 
to  financial  servitude.  Germany  was  reported  on  July  ih  1917. 
to  have  notified  Turkey  and  Bulgaria  that  she  would  assume  all 
expenses  incurred  by  those  countries  in  the  campaign  of  1917- 
18  Whether  this  reiH,rt  was  correct  or  not.  we  have  an  official 
statement  from  Diavid  P^y  in  the  course  of  a  spetch  re^iuesting 
a  supi.iementary  war  credit  tor  $90.000.00C»  in  December.of  that 
year  to  the  effect  that  Crtirmany  had  agreed  to  claim  no  interest 


TURKEY  259 

on  advances  made  to  Turkey  until  the  expiration  of  twelve  years 
after  peace  was  declared.  At  the  same  time,  he  estimated  Tur- 
key's "extraordinary"  war  expenditures  from  the  beginning  of 
the  present  war  to  date  at  $499,500,000.  The  Turkish  debt  at 
the  end  of  August,  1917,  was  estimated  at  $1,542,368,000  of 
which  the  new  war  debt  amounted  to  $858,818,000,  which  was 
made  up  as  follows: 

TURKISH  WAR  DEBT,  AUGUST,  1917 

Source  '^""'"Jil^ 

Requisitions  still  unpaid   ^i'-^'non 

Advances  from  Ottoman  Bank 4,5'?f2'J5S 

Advances  from  Germany  and  Austria ,  ,  ^'nhn 

Credits  in  Germany U'7in'rt¥l 

Credits   in   Austria-Hungar> ,ot'oi'>'«»» 

Miscellaneous    195.962.000 

$858,818,000 

Turkey  began  the  issue  of  paper  money  early  in  the  war,  and 
as  in  the  case  of  every  other  country  which  utilizes  this  method 
of  raising  funds,  resorted  to  it  in  ever  increasing  measure  as  the 
war  dragged  on.  By  the  end  of  1917  there  had  been  seven  issues 
of  imper  money,  as  follows:' 

ISSUES  OF  PAPER  MONEY   IN  TURKEY.  1914-1917 
Number  Amount 

First  $29,335,000 

si"d 35,109.000 

Third     52,650.000 

p'"rth 125.000.730 

^?fTh   144.000.000 

S    144.000.000 

s^t.;::::::::::::::::::. ::::::::.::: •  '<»•«»•«» 

$638,094,730 

The  first  of  these  issues  was  nominally  secured  by  $13.- 
984.000  in  gold  deposited  in  Germany  and  $9,490,500  in  gold 
deposited  in  Austria.  This  was  made  repayable  in  gold  in  Con- 
stantinople six  months  after  i^eace.  All  other  issues  were  secured 
by  deposits  with  the  Ottoman  Empire  Public  Debt  Commission 

•  The  first  five  issues  are  described  in  Economic  Journal,  September,  1917, 
p.  417. 


ai 


200 


DIRKt  T   AND  INDIRECT  COSTS  OK  THK   WAR 


i  .,,  I,' 


of  an  ecjuivalent  amount  of  German  Treasury  bills.  The  seconi 
and  third  issues  were  declared  to  be  repayable  in  gold  in  Con- 
stantinople one  year  after  peace.  I'he  fourth  issue  was  payable 
in  gold  from  three  to  seven  years  after  ijeace.  Of  this  issue 
$22,500,000  were  lent  to  the  (iemian  Government  itself.  The 
fifth  issue  was  repayable  in  aiM  irum  eight  to  eleven  years  after 

peace. 

riie  mass  of  pajjcr  nione>  in  Turkey  had  by  this  time  grown  to 
he  so  great  that  an  arrangement  was  made  in  connection  with  the 
fifth  issue  for  absorbing  some  of  the  notes  already  in  circulation, 
riu-  Gennan  Treasury  bills  upon  the  security  of  which  they  were 
issued  were  offered  for  sale  in  the  Turkish  market.  These  bills 
ran  for  three,  six  and  twelve  months  and  bore  4.  4>i.  and  5  per 
cent  according  to  their  maturity. 

In  his  budget  speech  of  March  9.  1918.  Minister  of  Finance 
Bev  stated  that  the  war  expenditures  to  the  end  of  the  fiscal  year, 
February  28,  1918.  were  $1,048,500,000  and  that  the  total  in- 
debtedness.of  the  country  now  amounted  to  $1,746,000,000.    Of 
this  vast  sum  $900,000,000  had  lieen  advanced  by  Gennany.  of 
which  $585,(XX).000  had  been  spent  in  Germany  itself.     The 
advances  from  .Austria  amounted  to  about  $45,000,000.     Early 
in  1918  Turkey  announced  her  first  internal  loan.     This  was  a 
5  per  cent  bond  issued  at  par  and  repayable  at  the  rate  of  1  per 
cent  per  annum.    The  interest  and  sinking  fund  payments  in  gold 
were  guaranteed  by  Germany  for  the  first  twelve  years.     The 
-ubscriptions    were   announced   as  $63,000,000.     This  carried 
Turkey  through  the  summer,  but  in  the  fall  a  new  loan  from 
Germany  was  obtained,  amounting  to  $180,000,000.     In  addi- 
tion to  these  various  loans  and  advances,  there  was  another  heavy 
item  in  the  indel>tedness  of  the  Sublime  Porte  of  $123,750,000 
for  unpaid  salaries  and  other  imfunded  liabilities. 

At  the  same  time  that  it  announced  the  internal  loan,  the 
government  also  provided  for  a  war  profits  tax.  This  consisted 
of  two  parts:  (a)  a  progressive  tax  on  profits  of  joint  stock 
companies  ranging  from  10  per  cent  in  cases  where  the  profits 
did  not  exceed  5  per  cent  on  the  capital,  tip  to  .=^0  per  cent  in  cases 


TIHKEV 


261 


wi.ere  the  prortts  were  50  per  cent  and  over;  (b)  a  progres- 
sive tax  on  increases  in  income  of  individuals  beginning  with  5 
per  cent  on  increases  of  $2,250  and  mounting  to  30  per  cent  on 
increases  of  $225,000  and  over. 

Before  the  war  the  Turkish  debt  amounted  to  $595,000,000. 
By  the  end  of  the  fiscal  year  February  28,  1917,  Djavid  Bey. 
Minister  of  Finance,  announced  that  it  had  grown  to  $1,404,- 
000,000.  A  year  later  it  was  sUted  to  be  $1,746,000,000.  At 
the  present  time  the  total  debt,  including  the  paper  money  issues, 
is  probably  not  far  from  $2,025,000,000.  If  this  figure  be  ap- 
proximately correct,  the  cost  of  the  war  to  Turkey  has  been 
$1,430,000,000. 


■■■; 


I 


li 


I.,.  .1 


j-  11 


ill 


BULGARIA 

Bul),'aria.  in  ccwnmon  with  the  other  Balkan  states,  suflfered 
severely  from  the  Balkan  wars,  and  with  the  outbreak  of  the 
Great  \\orld  War  was  destined  to  undergo  still  greater  losses. 
A  general  moratorium  was  established  early  in  August  but  the 
Treasury  was  reported  at  the  end  of  1914  to  be  still  receiving  all 
its  prescribed  revenues.  Crops  were  good,  and  owing  to  the  high 
prices  which  prevailed.  Bulgaria  enjoyed  a  certain  temj)orary 
prosperity.  This,  however,  did  not  long  continue,  and  by  March, 
1915.  this  country  was  said  to  share  with  Switzerland  the  dis- 
tinction of  l)eing  the  most  acute  sufferer  by  the  war.'  Bulgaria 
delayed  her  entrance  into  the  war  until  October  14,  1915.  Six 
months  before,  in  April,  a  consortium  of  German  and  Austrian 
l)anks  ttH>k  up  Bulgarian  Treasurj'  bills  to  an  amount  of  $50,- 
000.000.  This  undoubteilly  was  one  of  the  conditions  of  Bur- 
garia"<  clioice  of  suitors,  for  she  had  long  flirted  with  both  sides. 
After  this  event  the  further  necessan,*  financial  and  material  as- 
sistance needed  to  enable  lu-r  to  carry  on  her  share  of  the  cam- 
paipns  was  supplied  by  Germany  an<l  .\ustria.  .X  loan  of  SlOO,- 
OOO.CHX)  was  made  in  1916,  followed  by  a  further  loan  the  same 
year,  and  another  in  1917.  In  addition  to  advances  of  credit 
war  materials  were  furnished  dire -tly  by  the  army  authorities  to 
an  amount  not  made  public.  .\s  security  against  these  advances, 
the  proceeds  ot  the  sale  of  tobacco  in  Germany  and  Austria 
were  pledged.  The  Bulgarian  Treasury  bills  were  also  discounted 
by  Gennan  and  Austrian  banks  which  were  guaranteed  airainst 
loss  bv  their  governments ;  such  discounts  may  therefore  properly 
Ik-  regarded  as  indirect  government  advances.  These  Treasury 
bills  were  six  months'  bills  bearing  4''S  f)er  cent  interest.  In 
.\'oveml)er,  1917.  one  vear  5  per  cent  bills  were  put  out,  free  from 
tax  and  acceptable  in  payment  of  taxes  or  any  official  charges, 
it  is  not  possible  to  say  how  much  these  various  loans  and  ad- 
vances amounted  to.     During  the  winter  of  1917-18  Germany 

1  £V(>ii.i»ii.t(  (London),  March  6,  1915.  p.  484. 


BlIXARIA 


263 


discontinued  the  practice  of  granting  credits  to  Bulgaria  and  de- 
manded ptyment  for  munitions  and  other  material.  It  was  esti- 
mated rhat  at  the  end  of  the  war  Bulgaria's  debt  to  i^iermany 
amounted  to  $660,000,000.* 

Little  was  done  in  the  way  of  raising  additional  revenue  by 
taxation.    The  government  revenues  for  the  three  years  in  which 
Bulgaria  remained  in  the  war  averaged  slightly  over  $50,000,000 
per  annum,  but  this  barely  sufficed  to  meet  the  ordinary  civil  ex- 
penditures, and  consequently  the  debt  charges  were  met  out  of 
new  loans.     Towards  the  end  of  1917  a  war  profits  tax  was 
proposed,  which  differed  from  taxes  of  the  same  name  in  other 
belligerent  countries  by  being  regressive.    The  tax  was  confined 
to  those  trading  profits  which  during  the  war  reached  a  level 
of  $1,000:  on  profits  between  $1,000  and  $10,000  the  taxes  levied 
were  at  the  rate  of  55  per  cent;  between  $10,000  and  $20,000, 
50  per  cent,  and  on  profits  over  this  amount  45  per  cent.    These 
rates  were  for  profits  on  government  contracts.    On  profits  de- 
rived from  other  <=otirces  the  rates  were  placed  at  40.  35.  and  30 
per  cent,  respectively,   on  the  sums  above  enumerated.      For 
growers  of  tobacco,  one  of  Bulgaria's  chief  products,  the  rate 
was  still  further  reduced.    Dividends  were  limited  to  the  average 
prewar  rate.    It  was  later  reported  that  new  taxation  was  adding 
$20,000,000  a  year  to  the  revenues.     This,  however,  fell  far 
short  of  the  normal  expenditures  and  debt  charges,  and  to  fill 
the  gap  a  confiscation  of  wealth  illegally  obtained  is  even  now 
being  threatened. 

The  public  debt  of  Bulgaria  was  estimated  on  January  1.  1?'15. 
at  $175,000,000.  and  by  the  middle  of  1917  it  had  risen  to  S615.- 
000.000.  By  the  end  of  1918  it  was  estimated  at  $1,500,000,000. 
but  this  figure  probably  includes  the  paper  money  issued  by  Bul- 
garia to  the  amount  of  $500,000,000.  leaving  war  loans  of 
$815,000,000.  As  this  was  far  in  excess  of  the  monetary  needs 
of  the  country,  the  value  of  the  money  depreciated  more  than 
half.  As  the  total  wealth  of  Bulgaria  has  been  estimated  at  only 
$2,200,000,000.  it  is  clear  that  the  war  has  laid  upon  Bulgaria 

»  Commercint  and  Finannai  ChromcU,  March  22.  1919. 


I' 


2<A 


I»1KK(  T  AND   INDIHKt  T  COSTS  OF  THE   WAR 


a  burden  far  in  excess  of  her  economic  strength.  Unless  there  is 
a  complete  repudiation  of  the  war  indebtedness,  the  people  will 
suffer  from  ojtpressive  taxes  for  many  years  to  come.  As  Bul- 
garia issued  no  internal  loans  to  finance  the  war.  and  all  her  debt 
is  held  by  citizens  of  other  countries,  it  is,  however,  problem- 
atical whether  she  will  be  permitted  to  adopt  the  easy  method 
i»f  repudiation. 


Ili. 


SUMMARY  OP  DIRECT  COSTS 


y 


It  is  now  possible  to  bring  together  the  final  figures  so  far  as 
they  can  be  ascertained  for  all  the  belligerent  countries  and  to 
estimate  the  toul  direct  cost  of  the  war.  It  will,  however, 
probably  never  be  possible  to  state  precisely  how  much  the  world 
has  spent  in  prosecuting  the  Great  World  VVar«»ince  the  break- 
up of  states  like  Austria-Hungary,  Russia  and  even  Germany, 
and  the  limited  participation  of  countries  lii.e  Brazil  and  Por- 
tugal and  some  of  the  smaller  belligerents,  have  made  it  all  but 
impossible  to  secure  complete  figures.;<  Even  the  expenditures  of 
the  principal  belligerents  are  far  from  exact,  as  the  accounts  have 
not  been  closed  and  expenditures  are  still  being  made  which  may 
properly  be  credited  to  the  war  account.  But  in  such  a  gigantic 
total  as  that  presented  by  the  final  aggregate  cost  of  this  war.  no 
gteat  difference  will  be  made  if  some  of  the  smaller  items  fail 
of  exactness.  The  conclusions  of  this  study  are  presented  as  an 
approximation  to  the  truth  which  it  is  believed  is  probaMy  as 
exact  as  can  be  made  at  this  time. 

The  total  money  costs  of  the  war  for  all  the  then  belligerents 
have  been  competently  estimated  by  the  Copenhagen  War  Study 
Society  at  $18,785,000,000  for  the  first  year  and  $33,065,000,000 
for  the  second  year.*  For  the  third  year  the  costs  were  estimated 
by  another  authority  at  iR39.247.906,000.»  giving  a  total  for  the 
three  years  of  $91,097,900,000.  The  aggregate  gross  costs  of  the 
first  three  years  were  also  given  bv  the  Liberty  Loan  Bureau  of 
the  United  States  Treasure'  Department  as  $89,721,500,000.  As 
these  totals  so  nearly  agiee.  either  may  be  accepted  as  approxi- 
mately correct.  According  to  figures  compiled  by  the  Swiss 
Bank  of  Geneva,  the  fourth  year  of  the  war  cost  as  much  as  the 

>  Bulletin  of  the  G>penhagen  W«r  Sttidy  Society,  March.  1916.  p.  2. 
»  New  York  S%n.  July  29,  1917. 


1 


2(ih 


DIRKCT  AND  INDIRECT  COSTS  OF  THE  WAR 


Other  three  together,  or  about  $')0.000,0(X),000.  so  that  by  August 
1.  1918.  the  four  years  of  war  had  cost  the  world  $180,000,- 
000.000.  The  averaRc  daily  expenditure  on  war  for  the  first 
four  years  was  5123.000,000;  during  the  year  1918  it  rose  to 
$244,000,000.  At  this  rate  the  war  was  costing  more  than 
$10,000,000  an  hour.  It  must  be  remembered,  however,  that 
the  worldwide  inflation  of  the  atrrency  which  was  taking  j^ace 
immensely  increased  the  money  costs  of  the  war  with  each  suc- 
ceeding year. 

.\  number  of  independent  estimat-s  have  been  made  of  the 
total  co<t  of  the  war  of  which  two  oi  three  may  be  cited.  A 
"gross  total  of  $194,000,000,000"  for  the  seven  major  belliger- 
ents was  the  estimate  of  a  widely  circulated  pamphlet  published 
by  one  of  the  New  "S'ork  City  banks.'  At  a  conference  of  gover- 
nors anil  mayors  at  the  White  House  early  in  March.  1919, 
Secretar)  of  War  Baker  presented  an  estimate  of  the  totol  nwney 
costs  of  the  war  for  all  the  nations  engaged  in  it,  apart  from  all 
costs  of  damage  to  property  and  devastation.  .According  to  this 
estimate,  the  cost  was  $197.0O0.(XX).00O.'  The  most  recent  esti- 
mate, by  Edgar  Crammond.*  the  well  known  English  statistician, 
placed  the  final  direct  costs  of  the  war  at  $210,175,000,000  to 
which  sum  he  added  another  $50,000,000,000  as  the  indirect 
costs,  including  the  destruction  of  property,  loss  of  ships  at  sea, 
etc.  It  is  impossible  to  say  to  what  extent  these  various  esti- 
mates are  comparable  or  just  what  is  included  in  the  total.  It 
would  appear  from  their  magnitude  that  they  represent  gross  ex- 
penditures without  any  allowance  for  duplication  as  a  result  of 
advances  by  one  belligerent  to  another.  /  In  the  following  table 
are  summed  up  the  results  of  the  present  study,  showing  the 

>  TUc  World's  H'or  Debt,  prepared  and  issued  by  the  Mechanics  and  Metali 
National  Bank.  1919.  p.  16  __ 

'  Quoted  in  the  Economic  World,  March  IS.  1919.  p.  379.  A  later  estimate, 
prepared  by  the  Statistic*  Branch  of  the  General  Suff.  was  published  after 
the  manuscript  of  the  present  study  had  gone  to  the  printer.  It  is  extremely 
IfratifvinK  to  note  that  the  figure  therein  (riven  as  the  net  money  cost  of  the 
war  coincides  exactly  with  that  arrived  at  in  this  study,  namely  186  billion 
dollars.     .See  L.   P.   Ay  res,   The   War  with  Germany   (Washington.   1919), 

'  Address  before  Institute  of  Bankers  in  London,  March  26,  1919.  Asso- 
ciated Press  despatch. 


SUMMARY  or  DIRECT  COSTS  26." 

distribution  of  the  gross  costs  among  alt  the  active  belligerents 
whose  expenditures  have  been  described: 

Grot*       Advuicti  to  Allies         NttCost 

Unittd  SUUi  $J2.(«0.aS6.««     |9.4S5.014.n5  ^^^^^ 

G?«;rBrittin    UjmmJM       VMSXO.U)  35434.000^ 

R..t  of  Britiih  Empir* 4.4M4U.072  .„^^         A-fH^kml 

France'   2S3»27«2.»0       1,547^0^000         2*^»?S^ 

Itmly    12,413.««.O0O  'illlS^ 

Other  Entente  Allies 3,963,867.914  3.WJ67.W4 

TotiJ    |145..W7,«».622    $19,697,214.12$     $125,690,476,497 

Gerirmny    $40,150,000,000     $2,375,000,000       t'i^'^y^^ 

Turkry  snd  Bulgaria 2J45JOD.00O   2i45.20O.00O 

Total    $63.01«.16D.«»     $2,375,000,000       $60,643, 160.«l6 

Grwid   total    $208.4O5.851i22    $22,072^14.125     $186433,637,097 

'^The  advances  made  by  the  I'nited  States.  Great  Britoin.  France 
and  Genmny  to  their  allies  amounted  to  $22,025,014,125.  If 
these  be  deducted  from  the  gross  outlay  the  net  money  cost  of  the 
war  is  found  to  be  $186,333,637,097./  In  the  following  table 
are  shown  the  advances,  distributed  by  countries : 

ADVANCES  TO  ALLIES 
(In  millions  of  dollars) 

Made  to                        By  United  Sutes  Great  BriUin     France    Germany 

Great  Britain  4416  ••• 

France  2.852  IITJ            

Italy  1.591  2.065 

RustUi         W  2.840            

Sftm:.....:.. 341  4g           

Serbia   27  W           

Roumania *  ....             •••. 

Grwcf  ^3  ....            

Ciccho-Slovaks   50 

Cuba    »?  

Liberia    '  ••••             

9.455 

Other  allies  jg  

Dominions    "^  "" 

*•*'           ^^  2375 

Austria-Turkey-Btilgaria    '• 

iThis  i'  the  calculation  of  the  writer,  based  upon  the  ^«<'«7^y**T'y 
txoenditures.  If.  however,  the  estiroite  reported  to  the  Chamber  ofDeputies 
of  Ml?4a).000.0nO  (.ee  ahcv..  pp.  117-118)  he  accepted,  the  total  net  cost  of 
the  war  would  he  raided  to  $197,000,000,000. 


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DIRECT  AND  INDIRECT  COSTS  OF  THE   WAR 


Tt  should  be  noted  that  all  the  figures  thus  far  given  cover  only 
the  direct  money  outlays  of  the  countries  volved,  and  do  not 
take  into  account  the  indirect  costs,  such  as  the  destruction  of 
property,  the  depreciation  of  capital,  loss  of  production,  inter- 
ruption to  trade,  and  similar  items.  It  has  been  estimated*  that 
these  would  amount  to  as  much  as  the  direct  costs.  If  this  esti- 
mate, which  was  made  early  in  the  war  and  is  undoubtedly  too 
high,  be  accepted,  it  would  bring  the  total  cost  to  all  the  belliger- 
ents to  about  $370,000,000,000.  And  in  this  staggering  total 
there  are  not  included  the  expenditures  or  losses  of  neutral  na- 
tions, which  have  been  ver>'  real  and  in  some  cases  ve'V  serious, 
nor  the  loss  of  human  life,  nor  of  subsequent  burdens  such  as  pen- 
sions and  allowances.  An  effort  is  made  in  the  following  pages 
to  calculate  somewhat  carefully  these  difficult  and  indeterminate 
indirect  costs,  the  conclusion  of  which  shows  a  figure  somewhat 
less  than  Mr.  Crammond's  earlier  estimate. 

On  the  other  hand,  certain  deductions  should  be  made  which 
will  reduce  somewhat  the  real  costs.  In  the  first  place,  not  all  of 
the  war  expenditure  is  pure  loss.  Some  expenditures  are  simply 
transferred  from  the  family  budget  to  that  of  the  state.  Soldiers 
are  fed.  clothed  and  housed  at  the  expense  of  the  government, 
and  the  bill  is  paid  out  of  taxes  or  loans.  Other  expenses  are 
■positively  productive,  such  as  the  building  of  railways  or  mer- 
chant vessels.  And  in  the  second  place,  it  is  quite  obvious  that  a 
partial  explanation  of  the  costs  of  the  war  lies  in  the  depreciation 
of  the  inoney  unit.  Measured  in  dollars  the  expenditures  were 
mounting  steadily  and  rapidly.  Measured  in  terms  of  service  and 
commodities,  the  increase  was  much  less  rapid.  It  has  been  esti- 
mated by  the  editor  of  the  Statist  *  that  the  net  cost  of  the  war 
to  the  belligerents  is  about  one-half  of  its  total  costs.  If  this 
generalization  be  accepted  as  correct  and  one-half  of  the  direct 
costs  be  subtracted,  there  is  left  as  the  real  ecrmomic  cost  of  the 
was  $244,000,000,000. 

IE.   Crammond,   "The  Cost  of   the   War,"  Journal  of  Royal  Staluluai 
Society.  May,  1915,  p.  398. 
2  October  23.  1915,  p.  181. 


INDIRECT  COSTS 

Lx)ss  OF  Human  Life 

The  loss  of  human  life  and  the  race  deterioration  resulting 
from  war  are  the  most  appalling  and  permanent  costs  of  the  war, 
for  they  affect  not  merely  the  present,  but  are  traceable  through 
future,  generations.  Reliable  information  as  to  the  death  toll  is 
difficult  to  secure  during  the  progress  of  the  war  for  military 
reasons,  but  after  the  smoke  of  battle  has  cleared  away,  and  the 
necessity  for  secrecy  ceases,  fairly  accurate  data  are  to  be  had. 
Owing  to  the  large  number  who  even  yet  are  listed  as  "prisoners 
or  missing"  a  certain  element  of  conjecture  will  probably  always 
be  present,  even  in  the  most  carefully  compiled  official  statistics. 
The  best  information  at  hand  gives  a  total  death  roll  for  all 
belligerent  countries  of  approximately  10,000,000. 

Prom  a  purely  economic  standpoint,  the  presence  of  a  large 
number  of  diseased  and  maimed  entails  a  greater  burden  than  the 
loss  of  life  itself.  It  is  too  early  as  yet  to  procure  information 
sufficiently  accurate  and  detailed  to  permit  of  classification  of  the 
"wounded"  in  the  range  from  total  disability  to  slight  injury. 
The  degree  of  the  economic  burden  dependent  up<Hi  this  range 
therefore  involves  an  even  greater  element  of  conjecture.  Even 
more  difficult  to  estimate  and  compute  is  the  economic  burden  re- 
sulting from  the  peculiar  maladies  contracted  by  thousands  and 
hundreds  of  thousands  of  men  in  the  armies  during  the  couree 
of  the  war.  Trench  fever,  gassing,  tuberculosis,  and  other  dis- 
eases have  made  complete  human  wrecks  of  a  vast  number  of  men, 
many  of  whom  are  not  necessarily  included  in  "casualty"  lists.  It 
will  probably  be  years,  possibly  generations,  before  the  full  cost 
of  the  war  in  suffering  and  race  deterioration  can  be  properly 

measured. 

The  frightful  toll  in  human  life  exacted  by  the  Great  Worid 
War  can  be  better  comprehended  if  this  be  compared  with  the 


•?il 


:n 


270  DIRECT  AND  INDIRECT  COSTS  OF  THE  WAR 

loss  of  life  resulting  from  the  important  wars  of  the  nineteenth 
centur>'.     These  are  given  in  the  following  table: 

LOSS  OF  LIFE  IN  19TH  CENTURY  WARS' 

YVars                                                                       Duration  Dead 

Napoleonic.  1790-1815  9000  Jays    2.100,000 

Critman,  1854-56  730  785,000 

Prussian-Danish,  1864 1^  J;?*' 

Prussian-Austrian,  1866  J^  7mnnn 

American  Civil,  1861-65 U50  700,000 

Franco-Prussian,  1870-71  210  184,000 

English-Boer,  1899-1902 995  V.»W 

Russian-Japanese,   1904-5    ^^  ^^^ 

Balkan,    1912-13    233  '^■"^ 

Total  loss  of  nineteenth  century t,>«»,jw 

It  will  be  seen  from  these  ngures  that  the  recent  war  resulted 
in  a  death  toll  almost  exactly  double  that  caused  by  all  the  wars 
of  the  nineteenth  century  put  together.  The  first  two  years  of 
the  struggle  resulted  in  the  greatest  sacrifice  of  human  life  rela- 
ti ,e  to  the  number  of  men  engaged.  This  was  due  at  first  to  the 
open  methods  of  warfare,  then  to  the  use  of  liquid  fire,  deadly 
gases,  etc.,  to  meet  which  there  was  in  the  beginning  a  lack  of 
adequate  protective  devices,  and  finally  a  lack  of  facilities  and 
experience  to  cope  with  the  new  problems  affecting  life  or  health, 
which  was  overcome  in  the  later  years  of  the  war.  The  Copen- 
hagen Society  for  the  Study  of  War  made  a  careful  investigation 
of  the  cost  in  human  life  for  the  first  two  years,  basing  its  re- 
sults on  careful  computations  from  the  data  it  was  able  to  secure. 
Subsequent  casualty  lists  have  demonstrated  the  conclusions  to  be 
fairly  accurate,  so  they  are  given  as  a  satisfactory  estimate  for 
the  period  covered : 

>  Compiled  from  .  ,  ■     .  ,.^ 

L.   Leroy-Beaulieu.   Rechcrches  icotwmiques  sur  Ics  ott'rres  contem- 

poraines; 
I.  Block.  La  Guerre,  Vols.  IV  and  V; 
J.  Schurmann,  The  Balkan  Wars,  London.  1914. 
Waste  of  Militarism.    By  the  World  Peace  Foundation,  New  York. 
^Bulletin,  Human  Losses  in  the  War,  August  1,  1916,  p.  2. 


INDIRECT  COSTS  271 

FIRST  TWO  YEARS  OF  GREAT  WORLD  WAR— LOSS  OF  LIFE 

Country  Dead  Wounded  Invalids 

Austria-Hunnary              718,000  1,777,000  533,000 

Belrium                  .     50000  110,000  33,000 

iX"u  25000  60,000  18.000 

ISd    .   205000  512,000  154,000 

IS**    ..     885000  2,115,000  634.000 

rJ^L^ .  ...  885500  2.116.300  634.900 

?Z?^  :: 105000  245:000  73,500 

K-- :::.■;.■.■.■...■.■ 1,498,000   3,820,000    1.146.000 

K*   110.000  140.000  42.000 

Turkey  ".'.'. '. '. '. '.     '■  '■ '. '. '■  '■  '■     ' ' "•  •  "•  •  '•  •  ■  •  •  •  •  •     1S0.«»  350.000  105,000 

Total 4,631.500      11.245.300        3,373700 

Accepting  this  eitimate  as  correct,  it  appears  that  nearly  half 
of  the  dead  lost  their  lives  in  the  first  two  years  of  the  war.  In 
view  of  the  much  larger  numbers  of  men  involved  during  the  next 
t'vo  years,  it  is  clear  that  the  relative  loss  of  life  became  less  as 
greater  experience  was  gained. 

Appalling  as  is  the  loss  of  life  already  chronicled,  the  figure 
will  have  to  be  raised  in  order  to  include  those  first  reported  as 
"prisoners  or  missing"  but  whom  later  investigation  shows  to 
have  been  killed.  So  efficient  were  the  deadly  engines  of  de- 
struction employed  in  the  Great  World  War  that  in  many  cases 
men  were  literally  blown  to  atoms  and  later  recorded  as  missing. 
From  official  reports  made  by  a  few  of  the  belligerent  countries, 
it  is  thought  that  a  conservative  estimate  of  the  dead  who  now 
appear  in  the  "missing"  category  would  be  about  50  per  cent. 
In  England,  Mr.  Bonar  Law,  in  answer  to  a  parliamentary  in- 
quiry on  casualties,  stated  that  about  60  per  cent  of  the  missing 
were  probably  dead ;'  the  corresponding  figure  for  Canada  is  56 
per  cent ;'  for  France,  40  per  cent."  The  verification  of  the  50 
per  cent  estimate  is  borne  out  by  a  careful  checking  of  the  known 
"prisoners"  in  each  country  against  the  official  "prisoners  or 
missing"  of  that  nationality  held  by  the  enemy.  If,  therefore,  50 
per  cent  of  those  officially  listed  "prisoners  or  missing"  be  pre- 
sumed to  be  dead,  a  total  death  toll  is  obtained  of  12,991,000. 
Official  returns  have  now  been  made  by  the  more  important 

»  The  Arbitrator,  April.  1919.  p.  31. 

«  Current  History  Magasine.  New  York  Ttmes,  February,  1919.  p.  243. 

«  New  York  Evening  Post,  March  6,  1919. 


4 

I 

I 


II 


pi 


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272 


niKECT  AND  INDIRECT  COSTS  OF  THE  WAR 


ji 


l-if 


«   .. 


belligerents  as  to  casualties  suffered  during  the  war.  Where 
these  faU,  semi-official  estimates  have  been  made  which  are  prob- 
ablv  not  far  from  the  trttth.  In  the  following  table  these  official 
and  semi-official  announcements  have  been  brought  together,  and 
while  complete  accuracy  can  not  be  claimed  for  the  figures,  they 
are  probablv  as  accurate  as  it  is  possible  to  make  them,  at  least 
so  soon  after  the  event.  The  record  is  an  appalling  one  and  is 
sufficients  impressive  to  stand  by  itself  as  a  memorial  of  the 
Great  World  War  without  further  comment.  It  is  as  follows: 
CASUALTIES  OF  THE  GREAT  WORLD  WAR.  1914-1918 


Country  Known  Dead 

United    States 107.284' 

Great    Britain ^7.451' 

France    1,427,800'' 

Russia    2,7^.064 

jtaly     507,160 

♦Belgium    267.W0 

Serbia    707,343 

Roumania'    ^^?'iE 

•Greece    15,000 

•Portugal    4.000 

•Japan    ^^ 

6,938,519 

Germany    ^'SVlSri 

.Austria-Hungary    ...     911,0UU 

Turkev    436,924 

BuSa    _|^' 

3,060.252 
Grand  Total    . . .  9.998.771 


Seriously 

Wounded 

43,000 

617,740 

700,000 

1,000,000 

500,000 

40,000 

322,000 

200,000 

10,000 

5,000 


Otherwise 

Wounded 

148,000 

1,441,394 

2,344,000 

3,950,000 

462,196 

100,000 

28,000 

« 

30,000 

12,000 

907 


Prisoners 

or  Missing 

4.912 

64.907 

453,500 

2,500.000 

1,359,000 

10,000 

100.000 

116,000 

45,000 

200 

3 


3,437,740  8,516.497  4.653,522 


1,600,000 
850,000 
107,772 
300,000 

2,857.772 
6.295,512 


2,183.143 

2,150.000 

300,000 

852,399 

5.485,542 
14.002,039 


aSuSe? deaths  at  home. and  in  Expeditionary  Force. 
"Includes  colonial  casualties  as  follows. 


Force  Dead 

Great  Britain:  Car^da.^......;..  ^ 

New    Zealand 16.50" 

India       59,296 

French   Colonials    ''•'^  ,^!^^^l 


Wounded 
155,799 
158,199 
41,432 
46,969 
15,000 
44,000 


772,522 

443,000 

103,731 

10,825 

1,330,078 
5,963,600 


Prisoners 

or  Missing 

8,671 

• 

45 

e 

3,500 


.Exduswe  of  deaths  at  WallachiwWtecontroUed  by  Ge^^^^^^^^^^  Of, the 
18,000  prisoners  taken  by  B«'ga"!^?"'yy™„**^„\;  43,000  were  reported 
:,';^ad'*»t:re"r\tSd'aLt":^^^^  -^^^'  "  '*'" 

''fF.clusive  of  influenza  deaths,  and  those  killed  in  Macedonian  retreat. 

<■  Included  in  preceding  column. 


INDIRECT  COSTS  27?> 

The  wounded  constitute  a  broad  group  which  needs  further 
classification  before  it  is  possible  to  make  any  estimate  of  the 
economic  burden  which  their  condition  imposes  upon  society. 
The  total  number  of  killed  compares  with  the  total  number  of 
wounded  in  the  ratio  of  about  ten  to  twenty-two — a  proportion 
which  shows  that  in  this  respect,  too,  the  Great  World  War  has 
resulted  in  a  larger  loss  of  life  than  any  previous  recorded  war.' 
A  general  distinction  has  been  made  between  those  seriously 
wounded  or  invalided  and  those  otherwise  wounded,  the  figures 
for  the  two  classes  being  given  as  approximately  6,000,000  and 
13,000,000,  respectively,  or  in  about  the  proponion  of  one  to 
two.  The  degree  of  helplessness  of  the  wounded  determines  of 
course  the  amount  of  social  loss  involved,  and  this  can  not  be 
clearly  established  from  the  dficial  returns.  The  very  carefully 
compiled  returns  of  the  United  States  army  show  that  about 
85  per  cent  of  the  combat  wounded  are  fully  restored,  physically 
and  functionally,  and  that  approximately  5  per  cent  are  partly 
disabled,  but  capable  of  self-support ;  the  remaining  10  per  cent 
being  seriously  injured.  This,  however,  is  not  a  fair  average,  as 
life  saving  devices  had  been  perfected  and  new  knowledge  gained 
during  the  early  part  of  the  war  by  which  the  United  States 
medical  staff  profited.  A  more  typical  estimate  based  upon  actual 
Russian  army  hospital  experience  during  the  first  two  years  is 
given  by  the  Copenhagen  War  Study  Society,*  which  shows  the 
following  results : 

Per  Cent 

Normal  ability  restored  on  hospital  dischargt 44.S 

Ability  reduced,  restoration  partial S2.0 

Total  loss  of  working  ability 3.1 

Died  of  wounds  4 

The  largest  class,  amounting  to  over  half,  consists  of  those 
whose  ability  has  been  reduced  but  who  are  capable  of  partial 

'  "A  comparative  investigation  of  several  hundred  battles  of  modern  and 
recent  times  with  respect  to  the  proportion  of  killed  and  wounded  shows 
that  the  relation  may  be  expressed  by  the  numerical  ratio  of  10  to  35."— G. 
Bodart,  Losses  of  Life  in  Modern  Wars:  Austrta-Hungary.  France.  Carne- 
gie Endowment  for  International  Peace  (Oxford,  1916).  p.  18. 

^Bulletin,  p.  24. 


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274  DIRECT  AND  INDIRECT  COSTS  OF  THE  WAR 

restoration.  Their  disabilities  were  due  principally  to  loss  of 
hands,  arms  or  legs.  In  Germany  36.4  per  cent  of  this  group  were 
injured  in  their  hands  or  arms,  and  29.8  per  cent  m  the.r  legs. 
In  Russia  the  percentages  were  51  and  35.7.  respectively,  for  these 
two  classes  of  injury.^  If  the  Copenhagen  table  of  the  first  two 
years  be  assumed  to  be  applicable  to  the  whole  penod  o  the  war, 
and  if  the  further  assumption  be  made  that  one-half  of  the 
"prisoners  or  missing"  are  actually  dead,  a  table  may  be  con- 
structed which  will  show  the  loss  and  degree  of  disability  for  the 
whole  course  of  the  war.  based  on  these  assumptions: 

9998771 

Actually  known  dead •"•  2]99l[800 

Presumed  dead  ' 

12.990.571      12,990,571 

Total    

Wounded:  Normality  restored    ....  44.5  per  cent  or  9032.410 

Ability  reduced si.  629  244 

Total  loss •'■^  81 190 

Death  from  wounds -^  '           20,297,551 

33.298.122 

Total  casualties,  as  far  as  known 

To  estimate  the  value  of  the  human  lives  lost  in  war  and  to 
include  the  capitalized  value  so  determined  in  the  aggregate  cost 
of  the  war.  is  a  procedure  of  doubtful  statistical  propriety.  Bu 
as  the  losses  from  this  source  are  enormous  and  the  most  real  ot 
all  the  burdens  of  war,  it  seems  desirable  to  make  a  companson 
of  the  costs  involved  in  these  losses.  Even  such  an  imperfect 
estimate  may  convey  to  the  mind  some  idea  of  the  loss  sustained, 
which  could  not  be  definitely  stated  in  any  other  way. 

Since  the  publication  by  Sir  William  Petty  in  the  seventeenth 
century,  of  his  Political  Arithmetic,  various  interesting  attempts 
have  been  made  to  compute  the  value  of  "human  capital.  As- 
suming that  the  mass  of  mankind  was.  like  land,  worth  twenty 
years'  purchase.  Petty  concluded  that  the  capitahzed  value  of  a 
whole  people,  men.  women  and  children  together,  was  about 
$400  per  capita.  Subsequent  writers  have  given  varying  esti- 
r  Bulletin,  Copenhagen  War  Study  Society,  August  1.  1916,  p.  15. 


INDIRECT  COSTS  275 

mates  based  upon  the  productive  capacity  of  the  persons  involved. 
Sir  Robert  Giffen,  in  his  study  on  The  Cost  of  the  Franco-Prus- 
sian IV ar  of  1870-71^  estimated  the  value  of  the  human  lives 
lost  at  about  $3,000  per  capita,  but  did  not  include  this  item  in  his 
final  cost.  Other  estimates  of  per  capita  value  of  the  population 
for  England  have  been  $1,000  by  Professor  A.  Marshall;'  $1,500 
by  Dr.  Farr;*  and  $6,250  by  Professor  J.  S.  Nicholson.*  But 
the  most  elaborate,  as  well  as  the  latest  effort  to  place  a  monetary 
value  upon  human  life,  was  made  by  M.  Barriol,  a  French 
actuary.'  He  estimated  the  average  social  value  of  an  individual 
in  the  six  leading  countries  to  be  as  follows : 

United  States  of  America ^•''^ 

EnK""--!    fZ 

Germany    oonn 

France  o'SSS 

Austria-Hungary  2,«0 

Russia  2,020 

This  estimate  was  accepted  by  M.  Yves  Guyot  in  an  article  on 
"The  Waste  of  War" "  and  by  Mr.  Edgar  Crammond,  in  his 
article  already  cited  on  "The  Cost  of  the  War.'"  But  as  it  in- 
cluded women  and  children  as  well  as  men,  it  is  certainly  a  ques- 
tionable procedure  to  use  these  figures  as  a  basis  for  calculating 
the  losses  involved  in  the  destruction  of  men  of  military  age,  in 
the  very  prime  of  life,  and  therefore  of  more  than  average  earn- 
ing power.  However,  it  is  evident  from  this  very  fact  that  these 
figures  err  on  the  side  of  underestimation  rather  than  of  exag- 
geration, and  ^Jiat  no  grave  error  will  be  committted  in  using 
them.  Moreover,  it  may  be  pointed  out  that  if  a  capital  value 
can  be  assigned  to  human  beings,  this  value  would  t'>lay  be  very 
much  higher  than  it  was  before  the  war,  owing  both  to  a  greater 

1  Economic  Studies  and  Enquiries,  1,  26-29. 
'Principles  of  Economics,  p.  564. 

»39th  Ann.  Rep.  of  the  Registrar-General.  ,    ,    „, 

♦"The  Living  Capital  of  the  United  Kingdom,    Economic  Journal,  1,  95. 
»"The  Social  Value  of  an  Individual,"  Rtvue  Economique  Internationale, 
December,  1910,  and  May,  1911. 
«The  Nineteenth  Century  and  After,  December,  1914. 
">  Journal  of  Royal  Statistical  Society,  May,  1915,  p.  365. 


276 


DIRECT  AND  INDIRECT  COSTS  OF  THE  WAR 


■g»; 


1 

!! 


scarcity  of  men  and  to  the  depreciation  of  the  money  in  which 
their  vaUie  is  stated. 

Could  the  exact  nature  of  the  disabilities  be  known,  the  in- 
surable values  of  the  great  casualty  companies  would  afford  the 
most  accurate  basis  of  computation,  for  the  "price"  of  eye,  hand, 
arm.  finger,  or  leg  is  reduced  to  mathematical  terms  by  them  as  a 
result  of  vears  of  experience.    The  statutory  right  of  action  for 
wrongful'  death  in   L'nited  States  and  England  has  placed  a 
maximum  life  liability  of  $10,000.  and  more  recently  it  is  re- 
ported that  the  claims  for  damages  on  the  part  of  the  United 
States  against  Germany  were  based  on  a  valuation  of  $25,000 
for  each  civilian  death.    The  last  named  estimate  may.  however, 
be  regarded  as  rather  in  the  nature  of  punitive  damages  and  may 
be  omitted  from  further  consideration.     If  the  other  estimates 
are  used  as  the  basis  of  a  computation  of  the  value  of  lives  lost 
during  the  war,  and  of  disabilities  suflfered,  assuming  that  one- 
half  those  reported  as  "missing"  are  dead,  and  that  fifty  per 
cent  of  the  wounded  are  half  incapacitated,  the  following  table 
of  monetary  loss  may  be  arrived  at : 


INDIRECT  COSTS 


27; 


CAPITALIZED  VALUE  OF  LOSS  OF  LIFE 
Known  dead,  9,998,771 ;  presumed  dead,  2,991,800 


Estimate : 


Numerical 
ToU 

Valuation 

Total 

Baehiol— United   States, 

109,740 

H720 

$517,972300 

England, 

938,904 

4,140 

3,477,102,560 

Germany, 

1,997,365 

3,380 

6,751,093700 

France, 

1,654^50 

2,900 

4318,195,000 

Austria-Hungary,  1,132,500 

2,720 

3,080,400,000 

Russia, 

4,012,064 

2,020 

8,104,369,280 

'  Belgium, 

272,000 

2,900 

796300,000 

Italy, 

1,180,660 

2,384,933,200 

Serbia, 

757,343 

1,530332360 

Roumania, 

397,117 

802.176,340 

Greece, 

37.500 

2,020 

75,750,000 

Portugal, 

4,100 

8,282,000 

Japan, 
Turkey, 

301 

608,020 

488,789 

987,353,780 

Bulgaria, 

106,637  J 

215,406,740 

12,990,570 


$33,551,276,280     $33,551,276,280 


Petty-$400   5,196,228,400 

GiflFen— $3,000  38,971,713,000 

Mar5hall-$1,000 12,990,571,000 

Farr-$1,500   19,485356,500 

Nicholson-^,2S0   81,191,068750 

Legal-$10,000  129,905710,000 

Average    $45,898,917,700 

To  the  losses  from  death  or  wounds  inflicted  by  the  weapons  of 
the  enemy  there  must  be  added  those  resulting  from  disease  and 
pestilence,  privation,  hardship,  physical  exhaustion,  and  similar 
causes.  Ehiring  the  Napoleonic  War  loss  from  disease  was  said 
to  be  seven  times  as  great  as  that  from  gunfire,  but  during  the 
recent  war  this  ratio  was  certainly  not  maintained,  due  on  the 
(me  hand  to  the  greater  efficiency  of  destructive  weapons,  and 
on  the  other  to  improvement  in  medical  science  and  hygiene.  A 
new  horror  was  added  to  the  recent  war  by  the  introduction,  as  a 
dominant  weapcm,  of  deadly  gases  by  the  Germans  and  their  use 
in  retaliation  by  other  belligerents.    The  permanent  effects  of  the 

»  M.  Barriol's  figures  were  confined  to  the  six  larger  powers,  but  there 
seems  no  impropriety  in  applying  to  the  other  belligerents  his  estimates  of 
value.  In  order  not  to  exaggerate  the  total,  the  lowest  valuation  given  by 
him  was  applied  to  the  other  nations  with  the  exception  of  Belgium,  in  which 
case  the  I^ench  valuation  was  used. 


I 


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M    ■■ 


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278  DIRECT  AND  INDIRECT  COSTS  OF  THE  WAR 

gases  are  not  yet  determined,  although  at  the  pteser*  time  an 
investigation  made  in  Canadian  hospitals  to  which  victims  of  the 
1915  attacks  were  taken,  warrants  the  discouraging  conclusion 
that  mustard  gas  affects  the  eyes  of  72  per  cent  of  its  victims, 
and  seems  to  terminate  fatally  in  over  75  per  cent  of  the  cases. 
Trench  fever,  now  known  to  be  caused  by  vermin  of  the  trenches.  . 
is  said  to  injure  the  hearing  of  those  afflicted,  and  medical  ex- 
perts are  still  finding  new  developments  in  the  course  of  its  run. 
Statistics  have  been  gathered  covering  certain  group  studies  of 
trench  fever  as  it  affects  the  heart:  these  show  that  in  some 
groups  as  many  as  20  per  cent  of  the  sufferers  have  been  dis- 
charged as  permanently  unfit.'    Shell  shock  has  been  another  de- 
velopment of  the  recent  war.  producing  derangement  of   the 
nervous  system  of  its  victims,  resulting  in  hysteria  and  m  ex- 
treme cases  in  insanity."    The  permanent  effects  of  shell  shock 
have  not  yet  been  fully  determined,  but  are  being  carefully 

studied.  .  u.  *  u  e 

Another  disease  which  did  not  originate  in  the  war.  but  has 
been  terribly  aggravated  bv  it.  is  tuberculosis.    It  will  probably 
be  going  too  far  to  ascribe  all  cases  of  this  disease  in  the  army  or 
among  civilians  directly  to  war.  or  to  the  privations  induced  by 
war   but  there  is  no  question  of  its  fearful  spread  in  all  the 
European  countries  during  the  past  four  years.     It  is  reported 
that  of  the  2.437.450  German  soldiers  in  hospitals  at  the  end  of 
June.  1916,  some  750.000  were  suffering  from  pulmonary'  tuber- 
culosis   600,000  from  heart  and  nerve  diseases,  and  500.000 
from  intestinal  diseases.*     During  the  first  year  of  the  war 
over  86,000  men  were  dismissed   from  the  French  army  as 
phvsicallv  unfit  through  tuberculosis.'    It  should  be  remembered 
too  that  this  tuberculosis  deNcloped  in  that  period  in  the  army, 
among  men  who  had  stood  tests  for  physical  fitness  upon  entry 
Allied  with  this,  and  even  more  directly  attributable  to  the  trench 

rSuro'on  General's  Review  (V.S.),  Septembe.    191^ 
tjounial  of  American  Medical  Assocuitwn.  Vol  71.  P-  21. 
aCasu^ies^f  War,  published  by  Reznew  of  Renews,  p   126. 
*  Bulletin.  Copenhagen  Soc.cty  for  Study  of  War   P^  1^ 
•^Journal  of  American  Medical  Associahon,  Vol.  71,  p.  88Z. 


INDIRECT  CU.>^rS 


27" 


method  of  warfare,  was  the  spread  of  cerebro-spinal  fever  in  the 
British  army  in  1915,  the  survivors  of  which  are  reported  for 
the  most  part  as  complete  physical  wrecks.'  These  various  types  of 
invalidism  are  included  amonp  the  casualties  in  each  country  only 
in  cases  where  they  had  so  far  developed  as  to  put  the  sufferer 
out  of  the  fighting  ranks.  There  are,  'owevtr,  no  international 
medical  statistics  available  at  this  ti...  .rom  wh»ch  the  percent- 
ages of  permanently  invalided  can  be  determined,  though  the 
Copenhagen  Society  for  the  Study  of  the  War  gives  the  follow- 
ing percentages  based  on  the  first  two  years  of  warfare :  •  British, 
40  per  cent  of  the  "wounded"  arc  invalided ;  French,  30  per  cent ; 
Russians,  23.6  per  cent;  Germans,  16  per  cent.  In  view  of  the 
seriousness  of  wounds  and  gas  attacks,  and  the  rapid  spread  of 
war  epidemics  and  diseases  incident  to  new  types  of  warfare, 
especially  during  the  first  two  years,  these  percentages  do  not 
seem  too  high.  Invalidism  of  these  types,  especially  that  due  to 
disease,  involves  not  merely  a  social  economic  loss,  but  also  a 
social  danger  in  so  far  as  the  disease  may  be  contagious  or 
infectious. 

Another  aspect  of  the  subject  of  mortality  due  to  ' var  and  one 
which  has  been  painfully  evident  in  the  recent  conflict,  is  that  of 
an  increase  in  the  death  rate  among  the  civil  population  of  the 
belligerent  states.  This  has  been  verified  in  past  wars  but  it  re- 
mained for  the  Great  World  War  to  establish  a  new  record  in 
this  as  in  so  many  other  aspects.  Among  soldiers  the  weapons 
of  the  enemy  caused  most  of  the  deaths.  The  ravages  of  epi- 
demic diseases  are  far  greater  among  the  civil  population  than  in 
the  armies,  the  members  of  which  are  on  the  whole  better  fed 
and  cared  for  than  those  in  civil  life.  No  complete  statement 
of  the  loss  of  life  among  the  civil  populations  of  the  belligerent 
countries  attributable  directly  or  indirectly  to  war  can  be  given 
at  this  time.  Official  statistical  reports  are  lacking  in  many 
cases,  and  in  others  the  social  upheavals  which  have  taken  place 
have  prevented  the  compilation  or  publication  of  the  data  pre- 

^  Lancet,  April,  1919. 
*  Bulletin,  loc.  cit. 


1 

t 

'(■-. 

I 


280 


DIPKCT  A 


INDIRECT  COSTS  OF  THE  WAR 


sumaWy  gathered.  In  the  following  brief  survey  there  are 
brought  together  such  official  and  semi-official  reports  as  are 
available. 

Foremost  in  the  toll  which  it  levied  on  civilian  life  stands  the 
Spanish  influenza  of  1918.  While  the  exact  underlying  cause 
of  this  disease  is  still  in  doubt  the  responsibility  for  it  has  gen- 
erally been  fastened  on  the  war.  Complete  data  are  not  yet  avail- 
able, but  the  total  number  of  deaths  from  this  cause  is  known 
to  have  exceeded  six  million.  It  is  said  to  have  had  1,250,000 
victims  in  the  United  States  alone,'  of  which  30,000  deaths  oc- 
curred in  the  army  at  home  duri.ig  1918. 

Next  to  this  in  loss  of  life  stood  the  massacres  of  Armenians, 
Syrians,  Jews,  and  Greeks.  Of  the  two  million  Armenians 
dwelling  in  Turkey,  it  has  been  estimated  that  half  perished.^ 
Another  authority  reported :'  "For  a  whole  month  corpses  were 
observed  floating  down  the  River  ''  -phrates  hideously  mutilated. 
The  prisons  at  Biredjik  are  filled  regularly  every  day  and  emptied 
every  night  into  the  Euphrates."  According  to  the  Italian  Con- 
sul at  Trebizond,  the  whole  Armenian  population  of  that  town, 
numbering  from  eight  to  ten  th(  usand,  was  destroyed  in  one 
afternoon.*  The  total  number  of  these  four  nationalities  which 
perished  during  and  as  a  result  of  the  war  has  been  estimated  at 
four  million  lives  by  the  American  Committee  for  Armenian 
and  Syrian  Relief." 

In  the  Balkans  there  was  a  similar  loss  of  life.  War,  famine, 
disease,  and  starvation  exacted  a  toll  estimated  at  over  800,000 
in  Roumania,  which  would  give  the  highest  percentage  of  mor- 
tality in  any  country."  Early  in  1919,  it  was  reported  that  the 
census  taken  in  the  new  Bulgarian  territory  showed  that  the  male 
jiopulation  of  Macedonia  had  been  reduced  from  175,000  to 
42.500:  of  Thrace  from  494,000  to  225,000;  while  in  Mustapha 

»  Review  of  Reviews,  January.  1919.  p.  69. 
=  Sherwood  Eddy,  The  Right  to  Fight,  p.  52. 
'£)tV  Allemeine  Missionsseitschrxft.  November,   IVIS. 
♦Efonpmwf  (London).  October  9.  1915.  p.  530.  t -^t.fi.u 

■-■W    W    Earnest.  A  War  Catechism,  p.  51.     See  also  Walter  Littlefield. 
in  Current  Hiitofx  Magazine,  New  York  Timw.  February.  1919,  p.  237. 
«  Paris  despatch  in  New  York  Evemng  Post.  August  17,  1918. 


INDIRECT  COSTS 


281 


Pasha  only  4,000  males  were  left  out  of  33,000.  Serbian  and 
Austrian  civilians,  due  to  famine,  "spotted  typhus,"  privation, 
and  disease,  paid  a  death  toll  of  nearly  1,000,000  lives. 

The  last  available  figures  for  Russia  give  the  population  of 
Russia  in  January,  1914,  as  175,137,800.  The  normal  rate  of 
growth  would  have  added  about  10,000,000  lives  to  this  number 
during  the  next  five  years,  so  that  normally  the  population  in 
January,  1919,  should  have  numbered  185,000,000.  The  best 
estimate,  however,  shows  that  the  population  was  probably  not 
more  than  180,000,000.  The  deaths  among  the  civilian  popula- 
tion, in  excess  of  normal — in  other  words,  those  which  may 
fairly  be  attributed  either  directly  or  indirectly  to  the  war — 
have  been  estimated  at  approximately  2,000,000.'  This  estimate 
does  not  include  Siberia  and  Rnland,  where  the  effects  of  the  war 
were  but  slightly  felt,  owing  on  the  one  hand  to  their  distance 
from  the  seat  of  conflict,  and  on  the  other  to  their  predominantly 
agricultural  and  pastoral  character.  The  direct  military  losses  of 
Russia  have  been  officially  stated  as  2,762,064,  giving  total  deaths 
in  excess  of  normal  of  nearly  5,000,000.  which  agrees  with  the 
estimated  loss  in  population  referred  to  above.  In  view  of  the 
reports  which  have  come  out  of  Russia  and  Poland  this  estimate 
must  be  r^;arded  as  a  distinctly  conservative  one. 

In  less  than  a  year  and  a  half  after  the  beginning  of  the  war,  it 
was  stated  of  Poland :  "One-third  of  a  generation,  the  youngest, 
has  practically  ceased  to  exist,  due  to  famine,  pestilence  and 
starvation." '  At  the  end  of  the  war,  an  American  traveling 
through  Poland  found  that  children  imder  six  years  of  age  had 
practically  all  perished  from  starvation.* 

A  similar  record  obtained  for  the  invaded  districts  of  France. 
During  the  German  occupation  of  Lille,  the  death  rate  in  that 
cit>'  increased  from  a  normal  of  19.1  per  thousand  in  1913.  to 
21.1  in  1915,  and  415  (41.5?)  in  1918.  owing  largely  to  tuber- 
culosis and  epidemics.    After  the  liberation  of  Lille,  an  examina- 

>  Estimate  of  Dr.  F.  E.  Lee,  of  War  Trade  Board,  Russian  Bureau. 

'  Apptal  of  the  American  Poles  to  the  British  Government,  January  9,  1916. 

*  Sherwood  Eddy,  op.  cit.,  p.  49. 


I 


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292 


DIRECT  AND  INDIRECT  COSTS  OF  THE  WAR 


tion  of  the  children  of  that  city  showed  their  development  to  have 
been  arrested,  and  about  20.000  children  to  be  classed  as  "de- 
generate" as  a  result  of  insufficient  or  bad  food,  disease,  and 

malnutrition.* 

From  Germany  similar  reports  have  come  of  great  devitaliza- 
tion in  the  civilian  population  due  to  malnutrition  and  insufficient 
food,  which  has  resulted  in  tuberculosis,  intestinal  diseases,  and 
other  ailments.  The  loss  of  life  due  to  these  various  factors  dur- 
ing the  war  has  been  placed  at  812,296.^  The  same  source  re- 
ports that  tuberculosis  had  increased  50  per  cent  in  children  under 
five  years  of  age,  and  75  per  cent  among  children  between  five 
and  fifteen  years  of  age. 

On  the  other  hand,  the  loss  of  life  among  the  civilian  popu- 
lation of  Belgium,  in  spite  of  horrors  of  invasion,  was  relatively 
slight,  having  been  estimated  at  about  30,000  during  the  period 
of  the  war.'  Most  of  these  deaths  were  inflicted  by  the  invading 
army,  starvation  being  reduced  to  a  minimum  by  the  work  of 
the  Belgian  Relief  Commission. 

The  losses  among  neutral  seamen,  fishermen  in  mined  waters, 
civilian  population  in  air  raids  and  invaded  districts,  and  the 
civilian  population  of  belligerents  on  the  high  seas,  are  probably 
in  excess  of  100,000  lives.* 

Tn  conclusion  it  may  fairiy  be  estimated  that  the  loss  of  civilian 
life  due  directly  to  war  or  to  causes  induced  by  war  equals,  if 
indeed  it  does  not  exceed,  that  suffered  by  the  armies  in  the 
field.  In  view  of  the  facts  cited,  such  an  estimate  must  be  re- 
garded as  conservative.  And  yet  this  does  not  take  into  account 
the  appalling  effects,  some  of  them  unquestionably  permanent, 
of  war,  famine,  pestilence,  and  disease  on  the  sufferers  who 
did  not  die.  Years,  and  perhaps  generations,  will  be  required 
before  this  sacrifice  of  life  can  be  made  good,  and  the  populations 

1  Prof.  Calmetfs  Study  and  Report  to  Pasteur,  reviewed  in  the  Lancet, 

^^'mSchalfr  McTinische-lVochenschrift,  January  3.  1919.  quoted  in  the 

"-r^^JlVmstTMa^a.^^  New  York  Times.  February.  1919,  p.  237. 
*  Ibid. 


INDIRECT  COSTS 


283 


restored  to  normal.  It  has  been  estimated  that  to  replace  the 
numbers  lost  by  war  casualties  in  the  male  population  between 
20  and  44  years  of  age,  will  require  ten  years  for  the  United 
Kingdom,  twelve  years  for  Germany,  thirty-eight  years  for 
Italy,  and  sixty-six  years  for  France.*  The  decrease  in  births 
during  the  period  of  the  war  down  to  the  end  of  1917  is  stated 
to  have  been  500,000  in  the  United  Kingdom;  1,100,000  in 
Austria;  1,500,000  in  Hungary;  2,600,000  in  Germany,*  and 
833,000  in  the  uninvaded  districts  of  France.' 

But  not  merely  is  there  a  retardation  in  the  growth  of  the 
population;  there  results  also  a  race  deterioration.  The  physi- 
cally fit  are  withdrawn  from  civil  life  and  exposed  to  special 
danger  from  death  and  disease,  while  the  perpetuation  of  the 
race  is  left  to  those  rejected  for  military  service  by  reason  of 
disease,  infirmity,  or  lack  of  stature.  This  distinction  was  not 
so  important  in  the  recent  war,  as  almost  the  whole  male  popu- 
lation between  22  and  44  years  of  age  was  drafted  into  service, 
but  in  some  respects  this  made  the  repercussion  of  disease  on  the 
rest  of  the  population  all  the  more  serious.  The  men  who  are 
drafted  into  the  army  are  of  especial  importance  to  the  preserva- 
tion of  the  racial  integrity  of  the  population  by  reason  of  their 
age,  vigor  and  physical  fitness.    This  group,  in  the  first  place — 

"...  is  composed  exclusively  of  men,  its  removal 
thus  tending  to  disturb  the  sex  equilibrium  of  the  popula- 
tion and  to  prevent  normal  and  advantageous  sexual  selec- 
tion. Next,  these  men  are  both  all  of  the  age  of  greatest 
life  expectancy,  after  reaching  maturity,  and  of  greatest 
sexual  vigour  and  fecundity.  Finally,  they  are  men  none 
of  whom  fall  below,  and  most  of  whom  exceed,  a  certain 
standard  of  physical  vigor  and  freedom  from  infirmity  and 
disease.  And  for  each  of  these  men  so  removed  from  the 
general  population,  at  least  one  other  man.  falling  below  this 
standard,  has  been  retained  in  the  civil  population.     All 

1  La  Franco  Savorgnan,  Le  -probUme  dc  la  population  apres  la  guerre,  sum- 
marized in  Scientia,  March,  1918. 
*  Journal  cf  Royal  Statistical  Society,  January,  1918. 
*Ecoromist  (London),  March  8,  1919,  p.  450. 


i 


i  I    1 


If        ) 


31 

!! 

,i 


284  DIRECT  AND  INDIRECT  COSTS  OF  THE  WAR 

this  is,  in  effect,  the  establishment  of  a  kind  of  selection,  a 
military  selection,  whereby  a  most  desirable  element  of  the 
population  is  restrained  from  contributing  its  full  and  its 
particularly  important  influence  in  the  determination, 
through  heredity,  of  the  racial  standard  of  the  population.'" 

In  the  preceding  pages  an  effort  has  been  made  to  place  a 
money  value  on  the  army  losses  of  the  belligerents.  If  it  be 
assumed  that  civilian  losses  were  equal  in  number  to  tho&'  '- 
suiting  from  actual  warfare,  which  were  valued  at  $33,5.'^ \- 
000,000.  it  would  not  be  improper  to  add  as  much  again  for  the 
capitalized  value  of  civilian  life  lost  during  the  war.  Although 
many  of  these  were  children  and  old  persons,  instead  of  men 
in  the  prime  of  life,  this  fact  is  offset  by  the  conservative  char- 
acter of  the  numerical  estimate.  Granting  the  propriety  of  plac- 
ing a  capital  value  on  human  life,  the  total  amount  of  losses, 
both  civil  and  military,  on  the  basis  of  M.  Barriol's  computation, 
which  includes  women  and  children  as  well  as  men,  may  then  be 
set  down  as  $67,000,000,000. 


Loss  OF  Property 

It  is  a  relief  to  turn  from  the  tabulation  of  the  loss  of  human 
life  to  that  of  property,  for  serious  as  this  has  been,  it  does  not 
involve  the  same  elements  of  suffering  and  anguish.  From  a 
purely  statistical  standpoint,  however,  the  attempt  to  determine 
property  losses  is  the  least  satisfactory,  as  it  is  the  most  difficult. 
The  destruction  and  devastation  in  the  invaded  areas  of  Belgium, 
France,  Russian  Poland,  Roumania,  Serbia,  Italy,  and  parts  of 
Austria  are  probably  incapable  of  exact  determination  and  it  may 
well  be  doubted  if  the  exact  losses  will  ever  be  known.  Esti- 
mates vary  now  by  many  millions,  and  some  factors  seem  to 
defy  any  accurate  computation.  Agricultural  experts  seriously 
doubt  whether  the  vast  areas  of  Belgium  and  France  which  have 
been  churned  and  riddled  by  trenches  and  shell  holes,  and  satu- 

i  V.  Kellogg,  Military  Selection  and  Race  Deterioration,  Carnegie  Endow- 
ment for  International  Peace  (Oxford,  1916),  p.  178. 


i- 


INDIRECT  COSTS 


285 


rated  with  noxious  gases,  chemicals,  liquid  fire,  and  other  sub- 
stances which  destroy  the  productive  properties  of  the  soil,  can 
be  inade  fertile  for  many  years  to  come.  Only  the  most  intensive 
culture  made  the  great  crops  possible  before  the  war,  and  it  well 
may  be  that  "grass  will  not  grow  where  the  foot  of  Attila  has 
trod."  Should  time  confirm  this  hypothesis,  the  loss  will  not  be 
measurable. 

Belgium  covered  12,000  square  miles,  and,  with  its  population 
of  7,423,784,  was  the  most  densely  inhabited  country  in  Europe. 
Practically  the  whole  area  save  a  strip  along  the  west  coast  was 
invaded;  cn^  were  taken,  factories  denuded  of  machinery, 
mines  worked  and  in  retreat  destroyed;  cotton  spindles  confis- 
cated or  destroyed,  and  pillage  or  wanton  destructicm  sys- 
tematically carried  out.  During  the  German  occupation  heavy 
levies  were  made  upon  the  towns  and  communes,  and  in  addition 
to  these,  fines  and  seizures  were  imposed,  in  all  amounting  to 
about  $2,000,000,000.  The  total  property  losses  inflicted  upon 
Belgium  have  been  estimated  at  between  $6,755,000,000  and 
$7,600,000,000;  the  bill  presented  by  Belgium  to  the  Peace  Con- 
ference Comnrittee  on  Reparaticms  was  between  $7,000,000,000 
and  $8,000,000,000.*  A  fair  estimate  of  the  property  loss  to 
Belgium  would  therefore  seem  to  be  about  $7,000,000,000. 

Equally  systematic  was  the  destruction  in  the  invaded  districts 
of  France  which  comprised  eleven  of  the  most  prosperous  depart- 
ments. There  fell  into  the  hands  of  the  Germans  2,554  com- 
munes with  a  population  of  nearly  4,000,000.  About  8,000 
square  miles  of  the  agricultural  lands  were  laid  waste,  and 
500,000  buildings  damaged,  of  which  250,000  were  completely 
destroyed.  In  over  500  of  these  communes  the  ruins  will  have 
to  be  razed  to  the  ground  to  permit  of  reconstruction ;  this  is  true 
of  Arras,  Albert,  Compeigne,  Rheims,  Hazebrouck,  and  Bethume. 
The  devastation  is  only  a  little  less  complete  in  Amiens,  Clermont, 
Beauvais,  Senlis,  Epemay,  Chalons,  Bar-le-Duc,  Toul,  and 
Nancy.    It  is  reported  that  nearly  1,500  schools,  1,200  churches. 

1  New  York  Times.  March  10,  1919. 


S   I 


I 
I  III 

I  M 

in 


iu 


286 


DIRECT  AND  INDIRECT  COSTS  OF  THE  WAR 


li 


'A 


377  public  buildings,  and  over  1,000  industrial  plants  were  com- 
pletely destroyed.  Railroads,  bridges,  power  plants,  and  other 
public  utilities  were  systematically  put  out  of  business. 

The  loss  to  agriculture  was  very  great.  It  is  impossible  to 
determine  the  extent  to  which  the  productive  properties  of  the 
soil  have  been  destroyed,  but  the  loss  of  agricultural  implements 
alone  is  estimated  at  $2,000,000,000.  In  addition  to  this,  cattle 
and  stocks  of  material  and  crops  were  taken  or  destroyed.  Fruit 
trees  were  cut  down  and  the  forests  utilized.  The  destruction  of 
France's  coal  mines  in  the  Valenciennes  basin  during  the  retreat 
of  the  Germans  is  well  known.  The  same  procedure  was  fol- 
lowed in  the  iron  industrial  sections  of  Briey  and  Longwy  and 
Meuthe-et-Moselle.  The  textile  industries  which  lay  in  the  path 
of  the  invader,  the  sugar  refineries,  breweries,  machine  shops, 
foundries,  and  other  industrial  plants  were  stripped  of  their 
machinery  and  supplies.  Over  1,200,000  acres  of  valuable 
forests  were  laid  waste. 

The  total  destruction  in  France  was  placed  at  $13,000,000,000 
by  M.  Dubois,  of  the  Committee  on  Budget,  in  the  Chamber  of 
Deputies  in  December,  1918.'  On  the  other  hand,  Franz  Sigel, 
president  of  the  Friends  of  German  Democracy,  estimated  it  at 
$6,219,088,000.*  Perhaps  the  average  of  these  two  opposing 
estimates,  in  round  numbers  about  $10,000,000,000,  will  give  as 
close  an  approximation  to  the  truth  as  is  likely  to  be  secured  at 
the  present  time. 

While  Russia  is  an  agricultural  country  and  did  not  suffer 
the  same  losses  as  those  to  which  Belgium  and  France  were  sub- 
jected, the  property  damage  was  serious  and  may  be  estimated 
at  $1,250,000,000. 

The  destruction  in  Poland,  where  rich  mine  shafts  were  de- 
stroyed, crops  burned,  bridges  ruined,  railroads  cut,  foodstuffs 
taken,  machinery  broken  or  confiscated,  with  Kovno,  Courland, 

1  Ne7v  York  Times,  January  26,  1919,  Sec.  3.  p.  6.  A  detailed  report  is  there 
reprinted,  which  was  made  by  Mr.  George  B.  Ford,  head  of  the  Research 
Department  of  the  American  Red  Cross  in  France.  The  estimate  of  M. 
Dubois  is  described  as  "somewhat  high." 

2  Ibid.,  p.  8. 


INDIRECT  COSTS  287 

Vilna  and  Grodno  looted  if  not  destroyed,  has  been  placed  at 
$1,500,000,000. 

In  Serbia  the  destruction  was  systematic  and  thorough.  Pub- 
lic buildings,  libraries,  schools,  churches,  dwellings,  railroads,  all 
went  down  before  the  approaching  vandals.  The  property  dam- 
age in  Serbia,  .\lbania  and  Montenegro  has  been  estimated  at 
$2,000,000,000.^ 

Property  destruction  in  East  Prussia,  Austria  and  Ukraine 
may  be  placed  at  $1,000,000,000. 

Italy  was  invaded  in  the  north — her  most  vulunerable  spot.  In 
nothem  Italy  lies  her  best  agricultural  land,  which  in  1913  pro- 
duced half  of  all  her  products,  and  which  supports  44  per  cent 
of  her  total  population  and  64  per  cent  of  all  her  industrial 
workers.  The  1917  invasion  covered  the  territory  up  to  the 
Piave  and  Brenta  rivers.  This  damage  has  been  estimated  at 
$2,710,000,000. 

The  invasion  and  seizure  in  Roumania  of  the  vast  wheat  stores 
and  oil  fields,  the  property  destruction,  and  other  devastation, 
caused  losses  estimated  at  $1,000,000,000. 

The  property  damage  throughout  the  British  Empire  may  be 
placed  at  about  $1,750,000,000. 

The  property  destruction  in  Germany  as  a  resilt  mostly  of  air 
raids  can  scarcely  have  been  less  than  in  Great  Britain,  and  may 
be  set  down  at  $1,750,000,000. 

SUMMARY  OF  PROPERTY  LOSS 

Belgium $7,000,000,000 

France                              10,000,000.000 

Russia  ". '. 1,250,000,000 

Poland 1,500.000,000 

Serbia,  Albania,  Montenegro 2,000,000,000 

East  Prussia,  Austria,  Ukraine 1.000.000,000 

Italy                                2,710.000,000 

Roumania  1.000,000,000 

British  Empire 1.750.000,000 

Germany 1,750.000.000 

$29,960,000,000 
>  New  York  Times,  March  10,  1919. 


;•'      i 


lir  -t 


288 


DIRECT  AND  INDIRECT  COSTS  OF  THE  WAR 


ll 


Loss  OK  Merchant  Shipping 

Shipping  losses  during  the  war  have  Iwen  carefully  reported 
and  official  statements  have  from  time  to  time  been  given  out. 
The  British  Admiralty  ollice  has  publisl-  .*d  accurate  statistics  on 
the  losses  of  British  and  allied  and  neutral  tonnage;  but  that  oi 
the  Central  Powers  is  less  exact,  as  official  announcements  are 
either  lacking  or  else  confuse  seized  and  interned  with  sunk 
tonnage.  As  seized  and  interned  vessels  do  not  represent  a  loss, 
but  merely  a  transfer  of  possession,  these  should  not  be  counted 
in  estimating  the  property  losses  resulting  from  the  war.  The 
actual  losses,  based  on  official  returns,  are  given  in  the  following 
table:'  i 

•  United  States  Shipping  Board,  Division  of  Planning  and  Statistics,  RjpWt 
No.  572. 


¥    I 


.'ilM' 


INDIRECT  COSTS 


289 


GROSS   TONNAGE  OF   SEAGOING   MERCHANT   VESSELS   LOST 
AUGUST  1,  1914-NOVEMBER  11,  1918 

G>ttntries  Total    Enemy  Action     Marine  Ri«k 

Wo«u»  Total 15,398,392         13,007,650  2,3907« 

Alues  AND  Nkutkau     15,0(27,718         12,743,674«         2,284,044 

United  States 825,417  394,658  430,759* 

Great  Briuin  8.899.659  7,756,659  1,143,000= 

Other  countries 5.302,642  4,592,357  710,285* 

Norway  1,177,001 

Italy 846,333 

France 888,783 

Denmark  240^60 

Sweden 200,829 

Greece 345,516 

Russia 182,933 

Holland  203,190 

Spain 167,865 

Portugal 93.136 

Belgium  83,819 

Japan  120,176' 

Brazil   25,464 

Argentine   4,275 

Uruguay 6,027 

Peru  1.419 

Roumania   3,973 

Persia *  758 

Enemy  Countsies  370,674  263,970  106.698 

Germany 273,605  187,340  86,265* 

Austria  35,599  15,166  20,433* 

Turkey 61,470 

•Recorded  by  British  Admiralty,  unconfirmed  by  official  reports  of  other 
countries. 

•>U.  S.  Shipping  Board,  Division  of  Planning  and  Statistics  Report  for 
vessels  over  500  gross  tons. 

"=  No  figures  available  for  turUier  distribution  of  marine  risk  losses. 

«  Tabulated  by  Statistical  Branch,  British  Ministry  of  Shipping  for  vessels 
500  gross  tons  and  ove,-,  July  1.  1914-October  31,  1918. 

•From  British  Admiralty's  Report  of  German  and  Austrian  MercantUe 
Vessels  and  from  reports  of  the  Allied  Maritime  Transport  Council  as  re- 
ported to  February  1,  1919. 

'According  to  an  article  in  the  Japan  Advertiser,  reprinted  in  Comrierce 
Reports  (June  16,  1919,  p.  1384),  the  gross  tonnage  of  Japanese  vessels  sunk 
during  the  war  amounted  to  128,415,  of  which,  however,  only  17,964  tons  were 
regarded  as  having  been  sunk  by  enemy  action. 


m 


iiV' 


I .' 


290  DIKFXT  AND  INDlkECT  COSTS  OF  THE  WAR 

The  British,  allied  and  neutral  shipping  losses,  by  quarters,  are 
shown  in  the  tollowinj,'  official  returns  of  the  British  Admiralty 
Office: 

Period  British      Allied  and  Neutral    Total 

1914:  August  and  September 314,000  85.947  399,947 

4th    quarter 154.728  126.688  281.416 

1915:  1st    quarter 215.905  104.542  320.447 

2nd  quarter 223,676  156.743  380.4  9 

3rd   quarter 356.659  172.822  529.418 

4th    quarter 307,139  187.234  494,373 

1916 :  1st    quarter 325.237  198.958  524.195 

2ml  quarter 270.690  251.599  522,289 

3rd  quarter 284.358  307.681  592.039 

4th    quarter 617.563  541.780  1,159.343 

1917:  1st    quarter 911.840  707,533  1,619,373 

2nd  quarter 1.361.870  875.064  2.236.934 

3rd  quarter 952.938  541,535  1,494,473 

4th   quarter 782,889  489,954  1.272,843 

1918:  1st    quarter 697,590  449.330  1,146,920 

2nd  quarter 630,506  332,864  963,370 

3rd   quarter 510,551  381,995  892.546 

Oct.  1  to  Nov.  11  totals.     9.031.828  6,021,958  15,053,786 

It  is  difficult  to  reduce  the  tonnage  losses  to  a  monetary  value 
owing  to  the  wide  difference  in  the  value  of  the  vessels  sunk, 
varying  as  they  did  from  old  wooden  sailing  vessels  to  modem 
steamships  of  the  latest  type.  The  cost  of  construction  probably 
varied  from  $75  to  $200  a  ton,  but  as  much  of  the  tonnage  sunk 
in  the  early  part  of  the  war  was  replaced  during  1917  and  1918, 
and  further  replacement  will  be  carried  on  during  1919  and  sub- 
setjuent  years  at  the  highest  level  of  prices,  the  construction  cost 
of  the  tonnage  loss  can  scarcely  be  estimated  at  less  than  $200 
a  ton.  The  monetary  loss  involved  in  the  sinking  of  this 
15,398,392  gross  tons  may  therefore  be  placed  at  about 
$3,000,000,000. 

The  loss  does  not  stop,  however,  with  the  sinking  of  the  ves- 
sels; there  is  also  the  cargo  to  be  considered.  A  semi-official 
estimate  of  the  United  States  Shipping  Board  places  average 
cargo  value  nt  about  $250  a  ton  at  normal  prewar  prices.  In 
view  of  the  fact  that  during  the  war  period  many  of  the  ships 
sunk  were  carrying  foodstuffs  and  other  valuable  products  run- 
ning as  high  as  thousands  of  dollars  a  ton,  such  an  estimate  mu 
be  regarded  as  ver>'  conser\'ative.    In  fact,  the  high  freight  and 


INDIRECT  COSTS 


291 


insurance  rates  kept  all  but  valuable  cargo  from  being  shipped, 
so  that  the  average  value  must  as  a  matter  of  fact  have  been  much 
higher  than  $250  per  ton,  without  taking  account  of  tlie  higher 
prices  which  prevailed  during  the  latter  part  of  the  war.  It  has 
further  been  estimated  that  fully  two-thirds  of  the  tonnage  car- 
ried cargo.'  At  $250  a  ton,  this  gives  a  total  cargo  loss  of 
$3,800,000,000. 

The  total  tonnage  and  cargo  loss  together  therefore  amounted 
to  $6,800,000,000. 

Other  estimates  have  placed  this  loss  at  $6,904,922,272,  and 
at  $7,500,000,000.* 

Loss  OF  Production 

In  addition  to  the  direct  money  outlay  and  the  losses  result- 
ing from  the  destruction  of  human  life  and  property,  there  is 
another  indirect  cost  which  must  be  chronicled;  this  is  the  loss 
of  production  suffered  by  the  belligerent  nations  during  the  war 
period.  In  the  case  of  civil  wrongs  the  law  measures  the  dan> 
age  as  "the  amount  which  will  place  the  aggrieved  in  the  same 
situation  he  woul''  v  be  in  had  the  tort  not  been  committed." 
A  similar  standaro  .y  be  applied  to  war  costs  of  this  character. 
In  the  days  of  national  duels  the  item  classified  as  "loss  of  pro- 
duction" was  arrived  at  by  taking  the  number  of  men  withdrawn 
from  industry  and  maintained  under  arms ;  the  period  of  their 
withdrawal  was  then  determined,  an  I  their  usual  and  ordinary 
production  in  terms  of  money  was  multiplied  by  the  number,  and 
the  result  held  to  be  the  total  loss  of  production.  But  in  such  a 
titanic  conflict  as  the  Great  World  War  such  a  method  of  com- 
putation can  not  be  applied.  The  war  was  fought  not  merely 
by  the  armies  in  the  field ;  it  was  carried  on  by  whole  nations, 
most  of  whose  workers  were  withdrawn  from  useful  wealth 
production,  and  mobilized  in  the  production  of  war  materials 
for  destructive  ends.     Munitions  workers  were  as  far  removed 

»The  British  estimate  is  that  three-fourthi  of  the  sunk  tonnage  carried 
cargo. 

*  Twenty-four  billions,  pamphlet  published  by  Bankers  Trust  Company  of 
New  York,  1919,  p.  7;  and  World's  Work,  Vol.  39,  pp.  275-280. 


r ; 


292 


DIRKCT  AND  INDIRFXT  COSTS  OF  THE  WAR 


i 

L 

from  nonnal  production  as  were  the  men  called  to  the  colors. 
That  this  was  so  regarded  by  those  in  military  authority  is  seen 
from  the  changes  in  the  deferred  classifications  as  conscription 
procccdctl. 

In  1917  at  least  38.(XX).0(X)  men  in  the  world  were  under 
anns.  This  agjjregation  was  Rradual.  however,  and  perhaps  half 
that  number  only  was  at  any  one  time  in  the  field.    An  average 
of  i(),000,0(X>  men  may  therefore  be  estimated  to  have  been 
withdrawn  from  production  during  the  whole  period  of  the  war, 
and  this  calculation  may  be  considered  a  very  conservative  one. 
But  in  addition  to  these,  as  already  stated,  the  labor  of  a  mul- 
titude of  others  was  devoted  equally  to  destructive  ends.     On 
the  other  hand,  as  an  offset  to  the  loss  in  production  involved  in 
these  two  cases,  some  of  the  work  beinp  carried  on,  by  both  those 
in  the  field  of  battle  and  those  engaged  in  war  work  behind  the 
lines,    was   productive   in    the   ordinary   sense   of    this    term. 
Moreover,  there  was  a  considerable  addition  to  the  labor  force  in 
most  of  the  countries  through  the  influx  of  women,  young  per- 
sons, and  elderly  persons  not  normally  employed  in  production. 
And  finally,  under  the  stimulus  of  patriotism,  high  wages,  and  the 
bonus  system,  there  was  an  undeniable  speeding  up  irt  all  the 
belligerent  countries.    There  seems  little  reason  to  doubt,  ho\<r- 
ever,  that  the  losses  involved  in  the  diversion  of  civilian  workers 
to  purely  destructive  ends  far  outweighed  the  gains  just  described. 
Since,  however,  any  such  computation  is  highly  speculative,  it 
will  be  safer  to  err  on  the  side  of  conservatism,  and  to  estimate 
that  the  losses  and  gains  ofifset  each  other.    In  this  case  the  loss 
of  production  would  be  restricted  as  under  the  old  computation  to 
the  withdrawal  of  men  actually  in  the  field,  namely,  an  average 
of  20.000,000  men  for  four  and  one-half  years.    An  ascription 
of  an  average  productive  capacity  of  $500  a  year  to  each  of  these 
men   would    mean   a  total   loss   of   production   amounting   to 
$45,000,000,000. 

It  is  evident  that  the  diversion  of  labor  and  capital  in  any 
such  amount  must  have  shown  itself,  not  merely  in  a  cessation 

of  expansion  of  existing  enterprise  and  the  expansion  of  new 


INDIRECT  COSTS 


293 


ones,  but  also  in  the  lack  of  adequate  maintenance  and  care  of 
existing  undertakings.  Railways  have  run  down,  machines  have 
become  obsolete  and  have  not  been  replaced;  repairs  have  not 
bren  made,  and  in  practically  every  material  aspect  the  belligerent 
nations  of  Europe  have  retrograded  during  the  war.  It  is  im- 
possible to  say  how  long  a  time  must  elapse  before  these  nations 
will  be  able  to  regain  their  prewar  economic  status,  but  it  will 
certainly  be  years,  and  it  may  be  generations. 


1 


War  Reuef 

In  addition  to  the  increase  in  national  debts,  loss  of  life  and 
property,  loss  of  production,  and  other  war  costs,  there  must  be 
reckoned  the  vast  sums  of  money  voluntarily  contrib"ted  to  war 
relief.  These  can  be  enumerated  only  for  the  English  speaking 
belligerents,  as  the  amounts  for  the  other  countries  are  not  at 
hand.  This  limitation  does  not  therefore  mean  that  the  coun- 
tries not  listed  did  not  raise  and  expend  fimds  for  like  purposes, 
but  simply*  that  the  data  concerning  them  are  not  available.  In 
France,  Italy,  Germany,  and  other  continental  European  coun- 
tries like  Holland,  Switzerland,  Scandinavia,  and  in  some  of  the 
Balkans,  civilian  relief  and  army  hmpital  work  became  a  matter 
of  government  finance,  and  to  that  extent  is  included  in  the 
national  debt.  Amoiig  the  English  speaking  belligerents  vast 
sums  were  voluntarily  contributed  to  the  actual  hospital  woric 
for  the  battle  wounded,  and  also  for  the  relief  of  civilian  dis- 
tress caused  by  the  absence  of  the  breadwinners. 

In  the  United  States  each  philanthropic  mission  collected  its 
own  moneys  and  disbursed  them  under  its  own  auspices,  with 
little  or  no  coordination  until  the  year  1918,  when  seven  of  the 
larger  associations  temporarily  amalgamated,  each  taking  a  par- 
ticular branch  of  the  work,  thus  avoiding  duplications,  and  waste 
of  effort.  At  the  same  time,  the  finances  of  these  seven  activities 
were  collected  under  joint  effort,  apportioned  among  them,  and 
spent  in  their  various  branches.  The  sums  collected  and  «x- 
pended  on  war  relief  by  these  respective  organizations,  up  to  the 
amalgamation,  are  as  follows: 


;  .i;r!i 

I!: 

294 


DIRECT  AND  INDIRECT  COSTS  OF  THE  WAR 


American  Red  Cross ^f9'^'2SS 

Young  Men's  Christian  Association ^^-"""'^ 

Young  Women's  Christian  Association 5,000,000 

Knights  of  Columbus  i"-^'^ 

Jewish  Welfare  Board ^'^'S?? 

American  Library  Association cnnA'Sm 

War  Camp  Community  Service 15,000,000 

Salvation  Army 2,485,000 

$359,748,605 
United  Drive  of  1918 203,179,038 

$562,9-57,643 

Rockefeller  Foundation'    •  •        3,087.385 

Belgian   Relief  Work,  private  contributions 9,000.000 

Other  contributions,  estimated 50,000,000 

$625,015,028 
Canada:  Canada's  private  contribution  to  war  relief  totaled 
over  $90,000,000,  distributed  about  as  follows : 

Civilian  distress    ^'^^S'^ 

Red  Cross,  cash 12,000,000 

Red  Cross,  supplies 15,000,000 

Belgium,  cash    !"ciS'nnn 

Belgium,  supplies  1,500,000 

Frcnch-Serbian-Polish  relief    8,000.00(\ 

Young  Men's  Christian  Association 4,500,000 

Donation  to  British  war  relief 5,250,000 

$51,750,000 

Great  Britain  :  A  complete  record  of  Great  Bricain's  con- 
tribution to  war  relief  is  not  obtainable,  and  &"-  partial  enumera- 
tion of  known  items  must  not  be  taken  as  a  full  measure.  As  far 
as  known,  these  amounted  to: 

British  Red  Cross,  for  four  years  of  war $72,112,000 

Prince  of  Wales  reUef  fund 15,000,000 

$87,112,000 

Xew  Zealand :  to  March  31,  1917 17.585,000 

Australia :  to  August,  1917 36,000,000 

South  Africa :  to  end  of  1917 10,000,000 

Newfoundland  3.000,000 

India.  Relief  Fund 3,600,000 

$69,185,000 
Total $873,062,028 

1  The  actual  sum  expended  by  the  Rockefeller  Foundation  was  $22,444,814, 
but  of  this  sum  $8,000,000  was  contributed  to  American  Red  Cross  and  ap- 
pears in  its  figures,  and  $5,100,000  was  contributed  to  the  United  War  Work 
fund,  besides  about  $4,000,000  contributed  to  the  several  philanthropies  before 
they  united. 


INDIRECT  COSTS 


295 


Cost  to  Neutral  Nations 

In  any  complete  account  of  the  costs  of  the  war  there  must  be 
included  the  expense  to  which  the  neutral  nations  were  put  in 
maintaining  their  neutrality  and  guarding  their  frontiers.  The 
cost  of  these  ''neutrality  watches"  was  almost  as  great  as  actual 
belligerency,  especially  in  the  cases  of  Holland  and  Switzerland, 
where  mobilization  of  armies  was  felt  to  be  necessary.  The  cost 
of  the  war  to  the  neutral  nations  may  be  measured  by  the  in- 
crease in  the  debt  and  by  the  additional  taxes  levied.  There  were 
in  all  the  neutral  countries  increases  in  the  fiduciary  currency, 
but  as  these  were  made  by  banks  and  not  by  the  governments 
direct,  they  can  not  be  regarded  as  constituting  a  part  of  the 
cost  of  the  war,  although  by  inflating  the  currenc)'  they  doubt- 
less helped  indirectly  to  raise  the  total. 

Holland:  The  public  expenditure  in  Holland  rose  steadily 
during  the  period  of  the  war,  as  shown  in  the  following  table: 

PUBLIC  EXPENDITURES  OF  H0:L\ND 
Year  Amount 

1913 $95,200,000 

1914 143,600,000 

1915 124,000,000 

1916 210,800,000 

1917 261.600,000 

1918 330,000,000 

This  increase  in  expenditure  must  be  attributed  to  war,  either 
directly  or  indirectly  for  mobilization  purposes,  or  as  a  result 
of  higher  prices  due  to  scarcity  and  universal  inflation.  The 
expenditures  were  met  in  part  by  war  taxes  which  may  be  esti- 
mated at  about  $180,000,000,  and  in  part  from  loans.  The 
national  debt,  which  amounted  at  the  beginning  of  1914  to 
$459,200,000,  had  risen  by  the  end  of  1918  to  $832,400,000,  or 
an  increase  of  $373,200,000.  In  addition  to  this  there  was  a 
floating  debt  of  not  less  than  $120,000,000  in  Treasury  bills  and 
advances  from  the  Bank  of  the  Netherlands.  The  total  cost  of 
the  war  to  Holland  may  therefore  be  set  down  at  approximately 
$672,000,000. 


■n' 

P 

f 

1  ■■ 
\ 

V 


i;. 


m 


i:^ 


296  DIRECT  AND  INDIRECT  COSTS  OF  THE  WAR 

Switzerland:  Switzr-land's  debt  rose  from  $29,200,000  at 
the  end  of  1913  to  $275,600,000  at  the  signing  of  the  armistice, 
or  an  increase  of  $214,400,000.  In  addition  to  this,  special  war 
taxation  yielded  a  sum  which  up  to  the  end  of  1917  was  stated  as 
$33,844,400,  and  by  the  end  of  1918  may  fairly  be  estimated  to 
have  reached  $45,000,000.  Loans  and  taxes  together  would 
therefore  give  a  total  cost  to  Switzerland  of  about  $250,000,000. 
The  increase  in  the  debt  is  shown  in  the  following  table : 

GROWTH  OF  SWISS  DEBT,  1913  TO  1918 

(In  thou.sands  of  dollars) 

Debt                    1913           1914           1915           1916  1917           1918 

Consolidated....      29,254        48,962        81,104       113,520  120,750       180,550 

Floating lUOO        21,100        44,500  73,940        95,000 

Total 29,254        60,162       102.204       158,020       194,690        75,750 

Sweden  :  In  contradistinction  to  most  of  the  other  countries, 

Sweden  met  the  additional  expenditures  occasioned  by  the  war 

out  of  increased  taxation,  rather  than  loans.    The  total  receipts 

of  Sweden  for  the  years  1913  to  1918  are  shown  in  the  following 

table:' 

SWEDEN  S  RECEIPTS,  1913  TO   1918 

Year  Amount 

1913    $46,355,000 

1914 45,557.800 

1915 54.114.280 

1916     79.926,340 

1917"  122,866.140 

1918 157,533,000 

If  the  receipts  for  the  year  1913  be  assumed  to  be  normal,  the 
excess  of  receipts  above  normal  during  the  years  1914  to  1918 
amount  to  $228,222,560,  which  may  be  regarded  as  additional 
war  taxation.  The  largest  single  source  from  which  this  was 
derived  was  the  war  profits  tax.  In  addition  to  the  increased  tax- 
ation levied,  loans  were  placed  to  a  total  amount  of  $93,600,000. 
to  which  must  be  added  an  increase  of  $107,800,000  in  the  float- 

1  Karl  Hildebrand.  De  Svenska  Statsmakterna  och  Krigstidens  Folkhusall- 
ning,  1918.    Stockholm,  1919,  Appendix,  pp.  3-4. 


INDIRECT  COSTS 


29/ 


ing  debt.  Together  these  three  items  yield  a  total  of  approxi- 
mately $429,800,000  which  may  be  set  down  as  the  cost  of  the 
war  to  Sweden.  The  increase  in  the  debt  is  shown  in  the  fol- 
lowing table:' 

SWEDEN'S  DEBT,  1913  TO  1918 

Dec.  31  Funded  Floating  Total 

1913 $125,646,086  $4,012,800  $129,658,886 

1914 140,276,106  8,690,525  148,966,631 

1915 163,610,439  7,363,700  170,974,139 

1916 187,108,573  11,540,583  198,649,156 

1917 201,783,017  28,062,143  229,485,160 

1918 219,373,249  111,862,354  331,235,603 

Norway:  The  measure  of  the  cost  of  neutrality  to  Norway 
may  fairly  be  said  to  be  the  increase  in  her  national  debt  from 
$72,000,000  in  1913,  to  over  $160,000,000  in  1918.  Data  as  to 
increased  taxation  are  lacking.  If,  however,  it  be  assumed  that 
half  as  much  was  raised  by  war  taxes  as  was  derived  from  loans, 
a  total  of,  say  $130,000,000  would  be  obtained,  which  may  be 
taken  as  an  estimate  of  the  cost  of  neutrality  to  Norway. 


Denmark:  Denmark  kept  her  war  and  civil  budgets  distinct, 
and  just  before  the  armistice,  in  presenting  the  1918-19  budget, 
the  Minister  of  Finance  announced  that  the  war  debt  of  Denmark 
then  stood  at  $60,000,000.  This,  however,  does  not  measure  the 
total  war  cost,  as  Denmark  met  a  fair  percentage  of  the  increased 
expenditures  out  of  new  tax  levies.  If  these  be  estimated,  as  in 
the  case  of  Norway,  at  SO  per  cent  of  the  loans,  the  total  war  cost 
would  amount  to  $90,000,000. 

The  picture  of  the  effect  of  the  war  on  the  three  Scandinavian 
countries  would  not  be  complete  without  taking  into  accoimt  the 
currency  change.  The  inflation  and  the  changes  in  the  price 
level  are  shown  in  the  following  brief  table  of  percentages  of 
increase  between  1914  and  1918: 


» Ibid. 


!     ? 


298 


DIRECT  AND  INDIRECT  COSTS  OF  THE  WAR 


I     I 


t 

i'i  . 

Pi 


INCREASP:  in  note  circulation   and  prices,   1914  TO   1918 


Country 

Sweden  . . 
Norway  . . 
Denmark  . 


Percentages  of  Increase  in 

Note  Circulation  Prices 

182.5  103 

204.9  147 

133.4  82 


Summary 

Cost  of  war  to  Holland $672,000,000 

Switzerland 250,000,000 

Sweden 429,800,000 

Norway   130,000.000 

Denmark  90,000.000 


Total $1,571,800,000 

No  Other  neutial  nations  were  compelled  to  make  expenditures 
at  all  comparable  with  those  of  the  five  countries  just  described, 
but  yet  none  was  able  to  escape  some  added  burdens  rendered 
necessary  by  the  maintenance  of  neutrality.  Little  mistake  will 
be  made  if  an  additional  allowance  of  $200,000,000  is  made  to 
cover  such  countries  as  Spain,  Argent: .:•-,  and  other  Latin 
Am'-rican  states.  The  total  cost  of  the  wa-  to  neutrals  may  then 
be  set  down  in  round  numbers  as  $1,750,000,000. 


CONCLUSION 

In  conclusion,  an  attempt  may  be  made  to  bring  together  the 
scattered  data  of  this  study  into  one  final  comprehensive  picture 
which  shall  show  the  total  cost  of  the  war.  The  direct  costs 
were  estimated  at  $186,000,CKX>,000.  The  indirect  costs  are  now 
seen  to  have  amounted  to  almost  as  much  more.*  The  combined 
direct  and  indirect  costs  are  set  forth  by  the  principal  items  in 
the  following  table: 

DIRECT  AND  INDIRECT  COSTS  OF  THE  GREAT  WORLD  WAR 

Total  direct  costs,  net $186,333,637,097 

Indirect  costs: 

Capitalized  value  of  human  life: 

Soldiers^    $33,551,276,280 

Civilians    33,551,276,280 

Property  losses: 

On   land    29,960,000.000 

Shipping  and  cargo 6,800,000,000 

Loss  of  production 45,000,000,000 

War  relief 1,000,000,000 

Loss  to  neutrals 1,750,000,000 

$151,612,542,560 
Total   indirect   costs 151.612,542,560 

Grand   total    $33:  ,,46,179,657 

The  figures  presented  in  this  summary  are  both  incomptehen- 
sible  and  appalling,  yet  even  these  do  not  take  into  account  the 
effect  of  the  war  on  life,  human  vitality,  economic  well  being, 
ethics,  morality,  or  other  phases  of  human  relationships  and 
activities  which  have  been  disorganized  and  injured.  It  is  evi- 
dent from  the  present  disturbances  in  Europe  that  the  real  costs 
of  the  war  can  not  be  measured  by  the  direct  money  outlays  of 
the  belligerents  during  the  five  years  of  its  duration,  but  that  the 
very  breakdown  of  modem  economic  society  might  be  the  price 
exacted.  / 

1  According  to  press  reports  from  Paris,  the  Peace  Conference  Committee 
on  reparations  presented  a  first  report  in  which  the  losses  to  the  Entente 
Allies  were  stated  as  $120,000,000,000,  and  whic'.  proposed  that  this  amount 
should  be  exacted  from  the  Central  Powers  as  indemnity.  Later  this  sum 
was  scaled  down  to  a  much  lower  figure,  as  only  non-military  property  dam- 
age was  included.    New  York  Times,  March  4,  1919. 

*  No  attempt  has  been  made  to  place  a  money  value  on  the  crippled  soldiers 
and  the  invalided  and  devitalized  army  and  civilian  population.  If  this  were 
included  the  totals  would  be  considerably  increased. 


- '.'' 


■i 

M' 

■ 

\  i 

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1" 
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National  Shawmut  Bank,  Boston.    Anglo-French  loan.    Boston,  1915. 
Todd,  John  A.    Mechanism  of  exchange;  a  handbook  of  currency,  banking 

and  trade  in  peace  and  in  war.    Oxford,  1917. 

UNITED  STATES 

GENESAL 

Bankers  Trust  Company,  New  York.    Our  United  States.    1917. 
Chamberlain,  L.    America  finances  its  great  war.    New  York,  1917. 
Friedman,  E.  M.,  ed.    American  problems  of  reconstruction.    New  York,  1918. 
Kent,  F.  I.    Financial  war  problems  of  America.    New  York,  1915. 
Mc.\doo,  W.  G.    Financing  the  war.    Address  in  Chicago,  May  17,  1917. 
Mechanics  &  Metals  National  Bank,  New  York.    Applying  our  wealth  to 

war.    New  York,  1917. 
Miller,  A.  C.    Making  ready  for  new  financial  tests.    Washington,  1917. 
Rovensky,  J.  E.    America,  the  new  creditor  nation.    Address.    New  York, 

1917. 
Seligman,  E.  R.  A.,  and  Haig,  R.  M.    How  to  finance  the  war.     (Columbia 

war  papers.  No.  7.)    New  York,  1917. 
Sisson,  F.  H.    Over  the  top  in  business  and  finance.    New  York,  1917. 


BANKING   ANO    CURBENCY 

Benson,  Robert.    State  credit  and  banking  during  the  war  and  after. 

York,  1918. 
Lauck,  W.  J.    Cost  of  living  and  the  war.    New  York,  1918. 
Van  Antwerp,  W.  C.    War  and  Wall  Street.    Rochester,  1914. 


New 


304 


BIBLIOr.RAPHY 


EXPENDITUIieS 

U.  S.  Senate  Committee  on  Appropriations.    Urgency  deficiency  bill,  1918, 
for  war  expenses  and  other  purposes.     Hearings  September  19-21, 
1917.    Washington,  1917. 
Urgent  deficiency  bill  of   1918  for   war  expenses  and   other  purposes. 

Hearings  1917.    Washington,  1917. 
Urgent  deficiency  appropriation  bill,  1918,  on  account  of  war  expenses. 
Hearings  February  23,  March   1,  1918.     Washington,  1918. 


LOANS 


New 


'I 


■i 

9 

•i:, 

1 

M 

Bankers'  Trust  Company,  New  York.    War  finances :  the  liberty  loans. 

York,  1918. 
Childs,  C.  F.,  &  Company.    Concerning  U.  S.  Government  bonds.    Chicago, 

1917. 
Comparative  analysis  of  the  six  different  liberty  loan  issues.    New  York, 
1918. 
Guaranty  Trust  Company  of  New  York.    War  loans  and  the  United  SUtes, 
New  York,  1917. 
War  loans  of  the  U.  S.  and  the  Third  Liberty  Loan.    New  York,  1918. 
Hollander,  J.  H.    War  borrowing:  a  study  of  United  States  certificates  of 

indebtedness.     New  York,  1919. 
McAdoo,  W.  G.    Liberty  loan  address  at  Des  Moines,  May  21,  1917.    Wash- 
ington, 1917. 
Second  emergency  bond  issue.    Washington,  1917. 
Second  Liberty  Loan  and  the  American  farmer.    Washington,  1917. 
Second  Liberty  Loan  address  at  Atlantic  City.    Washington,  1917. 
Second  Lilierty  Loan  and  the  causes  of  our  war  with  Germany.    Wash- 
ington, 1917. 
Third  Liberty  Loan  address  at  Richmond,  Va.    Washington,  1918. 
Financing  the  war.    Address   in   Chicago,   May   17,   1917.    Washington, 
1917. 
McFadden,  L.  T.    War  finance  corpor.ition.    Washington,  1918. 
Muir,  John.     The  birth  of  American  thrift.     New  York,  1917. 
National  Bank  of  Commerce,  New  York.    War  credits  act,  approved  Sep- 

teml)er  24.  1917.     New  York,  1917. 
National  City  Bank  of  New  York.    Circulars  on  United  States  securities, 

government  finances,  etc.     New  York. 
Randolph,  H.  N.    Speech  on  the  liberty  loan.    Atlanta,  1917. 
Robinson  &  Company,  New  York.    War  loans  of  the  United  States.     New 

York,. 1917. 
U.   S.  House  Committee  on  Ways  and   Means.    War  Finance   Corporation 
hearings,  February  18-22,  1918.    Washington. 
War  Finance  Corporation  bill,  report.    Washington,  1918. 
Emergency  bond  issue,  report.    Washington,  1917. 

Second  emergency  bond  issue.    Hearings  August  28,  29,  1917.    Washing- 
ton, 1917. 


IHBIJor.RAl'IIY 


305 


Second  emergency  bond  ii^ue,  report.    Washington,  1917. 

Third  Liberty  Bond  authorization,  report.    Waihington,  1918. 
U.  S.  Senate  Committee  on  Finance.    War  Finance  Corporation  bill.    Wash- 
ington, 1918. 

Second  emergency  bond  'mue.    Hearings  September  11-12,  1917.   Wash- 
ington, 1917. 

War  Finance  Corporation,  report.    Washington,  1918. 

Third  Liberty  Bond  bill,  report.    Washington,  1918. 
U.  S.  Treasury  Department.    Second  Liberty  Loan  of  1917.   Washington,  1917. 

U.  S.  Government  bonds,  Second  Liberty  Loan.    Washington,  1917. 

Liberty  loan  bonds.    Washington,  1917. 

U.  S.  Government  bonds  of  the  Third  Liberty  Loan.    Washington,  1918. 

Method  ot   selling  War  Savings  Stamps  through  retail  store*.    Report 
of  Liberty  Loan  Conferences.    Washington,  1918. 

Save  money  and  you  save  lives.    Washington,  1917. 

U.  S.  Government  War  Savings  Stamps.    Washington,  1917. 

The    war    saver.     (National    War    Savings    Committee.)     Washington, 
19ia 

War  savings  societies.     (National  War  Savings  Committee.)     Washing- 
ton, 1918. 


lAXATION 

Corn  Exchange  National  Bank,  Philadelphia.    Analysis  of  the  War  Revenue 

Act  of  1917. 
Harris,  Forbes  &  Company.    War  excess  profits  tax  law.    New  York,  1917. 
Kahn,  Otto  H.    Government  ownership  and  war  taxation.    New  York,  1917. 
Some  comments  on  war  taxation.    New  York,  1917. 
The  war  and  business.    New  York,  1917. 
War  taxation.    New  York,  1917. 
LaFollette,  R.  M.    Taxation  of  surplus  incomes.    Washington,  1917. 

Vital  votes  on  taxation  of  incomes  and  war  profits.    Washington,  1917. 
War  profits  tax.    Washington,  1917. 
National   Bank   of   Commerce,   New   York.    Constructive   criticism   of   the 
United  States  war  tax  bill.    New  York,  1917. 
War  Revenue  and  federal  income  tax  laws.    New  York,  1917. 
U.   S.   Senate  Committee  on   Finance.    Revenues   to  defray  war  expenses, 
hearings  and  briefs.    Washington,  1917. 
Emergency  war  revenue  bill,  report.    Washington,  1914. 
U.  S.  Office  oi  Internal  Revenue.    Rules  and  regulations  for  collection  of 
taxes  on  transportation.    Washington,  1918. 
Regulation  No.  44  relating  to  war  excise  taxes.    Washington,  1918. 
Regulation  No.  43  relating  to  war  tax  on  admissions.    Washington,  1918. 
Regulation  No.  41  relating  to  war  excess  profits  tax  imposed  by  the  war 

revenue  act  approved  October  3,  1917.    Washington,  1918. 
Excess  profits  tax  primer.    Washington,  1918. 


306 


BIBLIOGRAPHY 


it 


GRHLXT  BRITAIN 

CKNEBAL 

Farrow,  Thomas,  and  Crotch,  Walter.    How  to  win  the  war,  the  financial 

solution.     London,  1916. 
Fraier,  Drummond.    Finance  after  the  wir.    Manchester,  1918. 
Hurd,  A.  S.    The  revcl.itions  of  the  budget.     London,  1915. 
Jmc,  G.    Les  finances  de  guerre  de  L'Anjleterre,  par  1915. 

Supplement  jusqu'au  par  1916. 
Kirkaldy,  A.  W.    Credit,  industry  and  tho  war.    London,  1915. 

Industry  and  finance.     b>ndon,  1917. 

Labor,  finance  and  the  war.    London,  1916. 
Lawson,  VV.  R.    British  war  finance,  1914-15.    2d  ed.  London,  1916. 
Mallocic,  VV.  H.    Capital,  war  and  wages.    London,  1918. 
Nicholson,  J.  S.    War  finance.    London,  1917. 
Pigou,  A.  C.    The  economy  and  finance  of  the  war.    London,  1916. 
Pulling,  Alex.,  cd.    Manual  of  Emergency  Legislation,  financial  ed.    London. 
RaddyfTe,  R.    War  and  finance.     London,  1914. 
Revelstoke,  J.  B.     British  staying  power.    London,  1916. 
Robinson.  William  S.    Finance  and  tlie  war.     Melbourne. 
Scott,  W.   R.    Adjustment  of  war  expenditures  between  taxes  and  loans. 
Glasgow. 

Economic  problems  of  peace  after  war.    London,  1918. 
Smith,  H.  Hamel.    How  to  pay  for  the  war  by  developing  latent  resources 

of  the  Empire.     London,  1918. 
Snowden,  P.    Who  is  to  pay  for  the  war?    Manchester,  1915. 
Stilwoll,  A.  E.    Great  plan,  how  to  pay  for  the  war.    London  and  New  York, 

1918. 
Wall,  W.  W.    War  and  our  financial  fabric.    London,  1915. 
Withers,  Hartley.    Business  of  finance.    Londoi     1918. 
Young,  Hilton.    System  of  i.atu        finance.    Li-ndon. 

Great   Britain:     Laws,    Statutes,    etc.     Manual    of    Emergency    Legislation, 
financial  ed.    London,  1915. 

Britain's  financial  effort.    London,  1917. 

England's   financial  .<;ui)rcn;;xy.  a  translation  of  "Die  englische  Finani- 
vormacht."    London,  1917. 

The  finance  acts  of  1915.    London,  1916. 


'AW 


■.i\ 


BANKING    AND    CURKENCY 

Bolton,  A.  D.,  ed.    Postponement  of  payments  act,  1914.    3d  ed.    London, 

1914. 
Macindoe,  A.    High  prices  of  commodities     Glasgow,  1917. 
Schuster,  E.  J.    Effect  of  war  and  moratorium  on  commercial  transactions. 

2d  ed.    London,  1914. 
Sonne,  H.  C.    The  city,  its  finance,  July   1914  to  July   1915,  and  future. 

London,  1915. 


BIBLIOGRAVHY 


307 


Spalding,  \V.  K.    Foreign  exchange  and  foreign  bill*  in  theory  and  in  prac- 
tice.   London,  1915. 
Withers,  Hartley.    Our  money  and  the  lUtc.    London,  1917. 

War  and  the  city.    London. 

War  and  Lombard  Street    London,  1915. 

KXPBNIMTUaU 

Urwiclc,  E.  G.    Spending  in  wartime.    London,  1915. 
Witheri,  Hartley.    War  and  »elf-denial.    London,  1915. 
Great  Britain:  Committee  on  Public  Retrenchment.    Firil,  third,  and  Anal 
reports.    London,  1915-1916. 


LOANS 

Fraser,  Drummond.    Day  by  day  borrowing  in  war  time.    Manchester,  1917. 

Lees,  Edward  O.    National  debt  and  iu  reduction.    Manchester. 

National  Bank  of  Commerce,  New  York.    Prospectus  of  the  three  war  loans 

of  the  United  Kingdom.    New  York,  1917. 
Oliphant.  J.  H.,  &  Company.    War's  effect  on  British  securities.    New  York. 

1917. 
Scurr,  J.    Casting  the  silver  bullets.    London,  1915. 
Great  Britain :  Report  of  Committee  on  War  Loans  for  the  Small  Investor. 

War  loans  for  small  investors.    London,  1915-1916. 
Select  Committee  on  Premium  Bonds.    Report    London,  1918. 


TAXAnON 

Allen,  J.  E.    The  war  debt:  how  to  meet  it,  with  an  examination  of  the 

proposed  capiul  levy.    London,  191& 
Burrows,  R.    New  income  tax  in  relation  to  the  war  and  business.    London 

1915. 
Fabian  Society.    Revolution  in  the  income  tax.    Westminster,  1916. 
C.iffird,  T.  J.  Carlyle.    Inflation  of  credit  and  tax  on  capital.    EdI.iburgh, 

Gully.  H.  J.    Income  tax  up  to  date.    London,  1917. 

Lkigdon,  A.  M.    Excess  profits  duty  and  the  excess  mineral  rights  duty. 

3d  ed.    London,  1918. 
M:Vey,  Frank  L.    The  financial  history  of  Great  Britain,  1914-1918.    New 

York,  Oxford  University  Press,  1919. 
Montgomery,  R.  M.    Excess  profits  duty.    London,  1916. 
Pethick-Lawrence,  F.  W.    Levy  on  capital.    London,  1918. 
Sanders.  W.    Law  and  practice  of  excess-profits  duty.    2d  ed.    London,  1918. 
Shimmin,  A.  N.    Taxation  and  social  reconstruction.    London,  1916. 
Snelling,  W.  E.    Excess  profits.    2d  ed.    London,  1916. 
Income  and  supertax  practice.    London,  1917. 
Coal  mines  excess  payments.    London,  1918. 
Spicer,  E.  E.    Excess  profits  duty  and  profits  of  control  establishment    3d 
ed.    London.  1918. 


Il 


308 


BIBLIOGRAl'lIY 


m 


ill! 

I- 


#1} 


ToUey,  C.  H.     Income  tax,  supertax,  excess  profits  duty,  etc.    London,  1916. 

Unilcrliuy,  F.  G.     Income  tax,  a  summary  of  the  law.     New  ed.    London, 
1917. 

Great  Britain;  Laws,  Statutes,  etc.     Excess  profits  duty  at  a  glance.    Lon- 
don, 1910. 

FRANCE 

GENERAL 

Baudiii.  P.     Le  budget  et  le  deficit.     Paris,  1916. 

Leaureyanl,   1'.      Le   vie  economiquc   en   France  pendant  la   guerre   actuelle. 

Paris,  1915. 
Liellet,  U.     Comnicnt  payer  lf=  frais  de  gucrn .     2d  cd      Paris,  1915. 
Bureau  deludes  de  I'lnformation  DipluTiatique.    L'eSort  economique  de  la 

France.     Paris,  1915. 
Combat,  F.  J.     Les  finances  pubhques.    2d  ed.     Paris,  1917. 
Droiiiel,  M.  I'aul.     Situation  economique  et  financiere.    Paris. 
Figanl,  Jean.     Lendemains  linanciercs  d'une  guerre.     Paris. 
Huart,  .Mbiii.     Finances  de  guerre  comparees.     Paris,  1916. 
Jeze,   G     and  others.    Problems  de  politique  et  finances  ae  guerre.     Paris, 

.916. 
Lathapeli  ■,  G.     Nos  linances  pendant  la  guerre.     Paris,  1915. 
Xeyniarc)  ,  Alfred.     Milliards  de  la  guerre.     Nancy. 
Ponimcreuil,  R.     La  guerre  economique  1914.     Poitiers,  191/,  Supp. 
Les  linances  au  service  du  pays.    London,  1916. 

H.\NK1NG    AND   CURRENCY 

Adinini.-tration  des  Monnaies  et  Medalles.    Rapport  au  ministre  des  finances, 

operations  de  191'  et  1914.     Paris,  1915. 
Havem.  J.     I.a  banque  de  France.     Paris,  1918. 
Combat,  F.  J.,  Les  affaires,  la  bourse,  les  banques  et  la  guerre.     Paris, 

1915. 
Petit,  M.    Moratorium  des  Loyers.     Paris,  1916. 
Saillard,  K.,  cd.     Les  baux  a  ferme.  les  metay-'jes  et  le  moratorium.     Paris, 

1917. 

TAXATION 

Combat,  F.  J.     L'impOt  sur  les  benefices  de  guerre.    Paris,  1918. 
Jay,  P.     Inipots  nouveaux.     Paris,  1917. 

Lecouturier,  H.     Benefices  de  guerre.     IJecisions  de  la  Commission  supericure 
de  taxation  des  benefices  de  guerre.     Paris,  1917. 
La  taxation  dts  beneficns  de  guerre.     Paris,  1916. 
Royer,  C.    Conimentaire  sur  les  benefices.     Paris,  1916. 


IKOEMNITY 

Arinbruster,  L.     Reparation  des  dommages  causes  par  la  guerre.   Paris.  19U>. 
Barthclcmy,  J.     Le  principe  de  la  reparation,  integrate  des  dommages  c»uses 
par  la  guerre.    Paris,  1915. 


BIBLIOGRAPHY 


309 


Darras,  H.    Les  indemnites  de  guerre.     Paris,  1915. 

Larnaude,  M.  M.    La  reparation  des  dommages  de  guerre:  conference  faites 

a  I'EcoIe  des  hautes  etudes  socials,  nov.  1915  a  janv.  1916.    Paris,  1917. 

Les  devastations  allemagnes  dans  les  departments  invahis,  mars,  avril,  1917. 

Marias,  G.    De  I'indemnite — de  requisitions— maritimes.    Paris,  1917. 

Monserrat,  G.    Les  dommages  de  guerre  et  supplement.    Paris,  1915,  1917. 

France:  Assemblee  Nationalc,  Chambre  des  deputies,  Commission  des  dom- 
mages de  guerre.  Rapport  .  .  .  sur  la  reparation  des  dommages 
causes  par  les  faits  de  guerre.    Paris,  1916. 

GER.,IANY 

CENEBAL 

Bonn,  M.  J.    German  war  finance.    New  York,  1917. 
Biittger,  H.    Das  Geld  im  Kriege.    Berlin,  1915. 

Cassel,  Gustav.    Germany's  economic  power  of  resistance.    New  York,  1916. 
Eulenburg,  F.    Geld  in  Kriege  und  Deutschlands  finanzielle  Riistung.    Leip- 
zig. 1915. 
Herz,  Ludwig.    Kriegskosten  und  Deckung.    Stuttgart,  1916. 
Jastrow,  J.    Geld  und  Kredit  im  Kriege.    Jena,  1915. 

Snow,  C.  D.,  and  Krai,  J.  J.    German  trade  and  the  war.    Washington,  1918. 
Zimmermann,  F.  W.  R.   Finanzwirtschaft  dos  Deutschen  Reichs.  Berlin,  1916. 
Economic  life  in  Germany  during  the  war.    Berlin. 


TAXATION 

Bamberger,  Georg.    Finanzvorschlage.    Berlin,  1915. 

Kriegsgewinn   und   Kriegserbschaftssteuer.     (Finanzwirtschaftliche   Zeit- 
fragen.  Heft  19)     Stuttgart,  1916. 
Bedall,  Alfr^J,    ed.      Steuerveranlagung  wahrend  des  Krieges,  Schutz  der 
Kriegsteilnehmer   and  deren   Angehorigen.    .    .    .    Musbach.     1914. 
Strutz,  Georg.     Die  Bestcuerung  der  Kriegsgewinne.     (Finanzwirtschaftliche 
Zeitfragen,  Heft  22.)     Stuttgart,  1916. 
Einkommensteuerpflicht  und  Einkommensteuererlegung  im  Kriege.    Ber- 
lin, 1915. 

MISCELLANEOUS 

Doraiswami,  S.  V.    Indian  finance,  currency  and  banking.    Madras. 

Shortt,  Adam.  Early  economic  effects  of  the  European  War  upon  Canada. 
New  York,  1917. 

Swanson,  W.  W.    Financial  power  of  the  Empire.    Kingston,  1915. 

Lia,  Antonio.    Imposta  sui  sopra-profitti  di  guerra.    Naples,  1917. 

Einaudi,  Luigi.  La  iinanza  della  guerra  e  della  opere  publiche.  Torino, 
1914. 

Magni,  E.     Finanza  vittoria.    Roma,  1917. 

Meisel,  F.    Oesterreichs  Flnanz  und  der  Krieg.    Munich,  1915. 

Work  and  health  of  Austria-Hungary;  a  series  of  articles  surveying  eco- 
nomic, financial  and  industrial  conditions  in  the  dual  monarchy  dur- 
ing the  war.    Berlin,  1916. 


m 


310  BIBLIOGRAPHY 

PERIODICALS 
GENERAL-ALL  COUNTRIES 

GENEKAL 

Economic  aspects  of  the  war.    G.  L.  Hoxie.    Moody  18:  115-16,  Mar.  19iS. 
Fallacies  of  war  finance.    C.  R.  Noyes.   Yale  Rev.,  N.S.  8:  72-89,  Oct.  1918. 
Finance  and  the  war.    Candid  Quar.  Rev.  6:  409-27,  May  1915. 
Finances  of  the  belligerents.    J.  M.  Kennedy.    Fortn.  Rev.  105 :  503-14,  Mar. 

1916. 
Finances  of  the  war.    George  Harvey.    N.  Am.  Rev.  203:  17-20,  Jan.  1916. 
Finances  of  the  war.    Spectator  114:  254  5,  Feb.  20,  1915. 
Financial  aspects  of  the  war.    A.  D.  Noyes.    World's  Work  28:  122-S,  Sept. 

1914. 
Financial  situation.    C.  Hobhouse.    Contemp.  Rev.  108:  137-45,  Aug.  1915. 
Financing  the  war.    Independent  86:  lOO-l,  Apr.  17,  1916. 
Financing  the  war.    A.  Reynolds.    Bankers  Mag.  94:  581-2,  May  1917. 
High  finance  and  the  danger  of  premature  peace.    E.  Crammond.    19th  Cen- 
tury and  After  78:  477-94,  Sept.  1917. 
How  the   foreign  governments   finance  the  war.    J.   R.   Merriara.    World's 

Work  30:  520-24,  Sept.  1915. 
How  the  public  should  pay  for  the  war.    I.  Fisher.    Ann.  Am.  Acad  78: 

112-17,  July  1918. 
How  the  war  is  financed.     H.  J.  Jennings.    Fortn.  Rev.  103:   1081-90,  June 

1915. 
Machinery  of  war  financing.    Rev.  of  Rev.  57:  334-6,  Mar.  1918. 
Mass  of  unremunerative  capital.    C.  H.  d'E.  Leppington.    Econ.  Jour.  27: 

411-14,  Sept.  1917. 
Men  and  money.     Living  Age  297:  572-3,  June  1,  1918. 
Paying  for  the  var.    J.  L.  Cohen.    Public  21 :  141-3,  208-211,  Feb.  1,  16,  i918. 
Strain  of  war.    Nation  101 :  192-3,  Aug.  12,  1915. 
Substance  and  shadow  in  war  finance.    C.  C.  Plehn.    Am.  Econ.  Rev.  8: 

564-78,  Sept.  1918. 
War  and  the  financial  system.    J.  M.  Keynes.    Econ.  Jour.  24:  460-86,  Sept 

1914. 
War  burdens  and  the  classes.    Nation  101 :  765-6,  Dec.  30,  1915. 
War,  business  and  insurance.    D.  S.  Jordan.    Scientific  Monthly  1:  165-76, 

Nov.  1915. 
War,  credit,  business.    T.  C.  Taylor.    Contemp.  Rev.  106:  366-75,  Sept.  1914. 
War  finance     E.  J.  Dillon.    Contemp.  Rev.  107:  294-311,  Mar.  1915. 
War  finance  plans.    A.  D.  Noyes.    Bankers  Mag.  94 :  508-13,  May  1917. 
War  finances  in  Europe.    Cur.  Hist.  Mag.,  N.  Y.  Times,  5 :  624-32,  Jan.  1917. 
War  finances  of  the  belligerents.    L.  Grahame.    Pan  American  Mag.  26 :  267- 

8,  Mar.  i918. 
World  crisis  and  finance.    Jour.  Pol.  Econ.  22:  791-7,  Oct  1914. 


BIBLIOGRAPHY 


311 


BANKING   AND  CURKENCY 

Banker  and  the  war.    D.  R.  Forgan.    Bankers  Mag.  96:  709-11,  June  1918. 
Capital  and  the  cost  of  the  war.    W.  H.  Mallock.    19th  Century  83 :  197-209, 

Jan.  1918. 
Currency  expedients  abroad.    Econ.  Jour.  24:  503-10,  Sept  1914. 
Currency  policy  and  the  European  war.    C.  A.  Conant.    Jour.  Pol.  Econ.  22 : 

717-35,  Oct.  1914. 
European  loan  banks  in  war  time.    Rev.  of  Rev.  51 :  222-3,  Feb.  191S. 
EflFect  of  the  war  upon  the  rate  for  capital.    C.  A.  Conant.    Pop.  Sci.  86: 

333-5,  Apr.  1915. 
Effect  of  war  on  the  supply  of  investment  capital.    Bankers  Mag.  89:  604-7, 

Dec.  1914. 
Foreign  banking  and  the  war.    Bankers  Mag.  (London)  99:  79^-86,  Jan.  1915. 
Foreign  exchange  during  the  war.    G.  Zimmer.    Ann.  Am.  Acad.  68:  151-60, 

Nov.  1916. 
Foreign  exchanges  since  the  outbreak  of  war.  Jour.  Royal  Stat.  Soc.  78  ■  82-7 

Jan.  .915. 
German  victories  and  the  markets.    Nation  99:  290-1,  Sept  3,  1914. 
Gold  reserves  and  paper  circulation  with  percentage  of  gold  to  notes.    Econ. 

Jour:  28:  124,  Mar.  1918. 
Les  grandes  banques  europeens  depuis  le  debut  de  la  guerre.     I.'Econ.  fran 

42pt  2:  295-6,  Se^v  1914. 
Outlook  for  capital.    Edini     -  i  Review  222:  1-21,  July  1915. 
Relation  of  war  to  investm-      j.    C.  K.  Hobson.    New  Republic  2:  148-50, 

Mar.  13,  1915. 
Review  and  forecast  of  the  financial  markets.    J.  Moody.    Moody  20-  1-17 

61-4,  Jan.,  Feb.  1917. 
Verdict  of  foreign  exchanges.    Nation  100:  340-1,  Mar.  4,  1915. 


EXPENDITURES 

Colossal  war  expenses  of  Great  Britain,  Germany  and  France.    Cur.  Hist 

Mag.,  N.  Y.  Times,  6:  112-13,  Apr.  1917. 
Depenses  et  ressources  de  guerre.    L'Econ.  fran.  44:  39S-397,  Mar.  25,  1916. 
Easier  to  raise  money  than  to  spend  it    T.  W.  Lamont.    Rev   of  Rev   58- 

37-''0,  July  1918. 
Europe's  preparation   for  war  expenses.    C.  F.  Speare.    Rev.  of  Rev    50- 

322-S,  Sept  1914. 
How  much  it  costs  to  kill  a  man  in  battle.    Sci.  Am.  Ill:  147,  Aug.  29,  1914. 


!l 


COSTS 

The  cost  of  the  war.    Edgar  Crammond.    Jour.  Royal  Stat.  Soc.  78 :  361-413. 
Cost  of  a  year  of  war.    C.  F.  Speare.    Rev.  of  Rev.  52:  204-7,  Aug.  1915. 
Cost  of  the  war.    R.  G.  Usher.    Atlantic  Mo.  115:  847-53,  June  1915. 
Cost  of  the  war  for  one  year.    Living  Age  285 :  236-8,  Apr.  24.  1915. 
Cost  of  the  war  to  Europe.    Bankers  Mag.  92 :  185-8,  Feb.  1916. 


312 


mitl.IDf.R.SIMIY 


m 


it 


I 


Cost  of  war.    T.  B.  Stork.     Unptip.  Rev   « :  243-7,  Oct  1917. 

Costs  of  the  war  in  money,  property-,  '  nil  morale.    Lit.  Digest  58:  98- 

101,  Aug.  31,  1918. 
Counting  the  cost.     E.  J.  Dillon.     Foru..  Rev.  108:  330-47,  Sept.  1917. 
Critical  comment,  tlie  cost  of  the  war,  terms  of  peace,  a  remarkable  forecast 

H.  Lucy.     Nation  99:  399-100.  Oct.  1,  1914. 
Do   wars   really  cost  anything?    T.   H.    Price     World's   Work  29:   53^43, 

Mar.  1915. 
Economic  aspects  of  the  war.    E.  Crammond.    Quar.  Rev.  221 :  517-40,  Oct 

1914. 
Europe's  war  bill.    H.  J.  Jennings.    Living  Age  287:  79-87,  Oct.  9,  1915. 
Des  evaluations  .Ic  cuit  de  la  guerre.    Eu',ciie  d'Eichthal.     Revue  dcs  sciences 

politi(iues,  series  3  and  33,  pp.  6-28. 
Money  costs  of  the  war.     E.  L.  Bogart    The  Historical  Outlook  10:  310-312, 

June  1919. 
On  the  trail  of  the  war.    G.  H.  Gushing.    Technical  World  22:  168-75.  Oct 

1914. 
Reckoning.     E.  Crammond.     19th  Century  80:  221-38,  Aug.  1916. 
Staggering  cost  of  modern   warfare.    A.  A.  Hopkins.     Sci.   Am.   116:   517, 

May  26,  1917. 
Statistical  side  of  the  economic  costs  of  the  war,  with  discussion.    W.  S. 

Rossiter.    Am.  Econ.  Rev.  6  supp.:  94-123,  Mar.  1916. 
War  and  the  Treasury.    Spectator  119:  483-4,  Nov.  3,  1917. 
War  costs  and  the  war  debt.    T.  H.  Price.    Outlook  120:  134,  Sept  25,  1918. 
War  in  dollars  and  cents.    Yves  Guyot.    Everybody's  31 :  858^,  Dec.  1914. 
What  the  war  cost  all  the  powers  to  December  31,  1917.    Lit  Digest  56: 

72-6,  Jan.  26,  1918. 
What  the  war  is  costing  Europe.    C.  F.  Speare.    Rev.  of  Rev.  51 :  452-4,  Apr. 

1915. 
What  wars  cost.     Investment  Weekly  20:  14-15,  Oct  20,  1917. 
The  world's  war  bill.    H.  J.  Jennings.     Fortn.  Rev.  101:  1051-9,  T-.ne  1917; 

Living  Age,  series  8,  7 :  195-201.  July  28,  1917. 


f  I  - 


Consolidating  the  world  war  debt  C.  F.  Taylor.  Public  21:  1079-82,  Aug. 
24,  1918.  ^     ^„  _, 

Expansion  of  Europe's  national  debt.    T.  H.  Price.    Outlook,   108:  968-71. 

Dec.  23,  1914. 

Financial  obligations  of  the  nations.  H.  M.  Baker.  lUus.  World  30:  451-2, 
Nov.  1918. 

International  finances.    F.  W.  Mahin.    N.  Am.  Rev.  202:  220-5,  Aug    1915. 

National  debts  of  the  world.  O.  P.  Austin.  Journal  of  Geography  16: 
236-7,  Feb.  1918. 

President  Wilson's  opportunity;  proposal  that  the  United  States  sha  1  re- 
quire European  nations  to  disarm  before  giving  them  financial  aid. 
B   Villiers.    Contemp.  Rev.  114:  279-85,  Sept  1918. 


BIBLIOGRAPHY 


313 


Refunding  the  national  debt    Jour.  Pol.  Econ.  24 :  406-7,  Apr.  1916. 

War  and  debt.    W.  S.  Rossiter.    Atlantic  Mo.  117:  702-9,  May  1916. 

War  and  national  debts.    H.J.Jennings.    N.  Am.  Rev.  206 :  25-35,  July  1917. 

War  debt  and  national  credit.    N.  Am.  Rev.  206 :  193-S,  Aug.  1917. 

War  debts  and  future  peace.    J.  E.  Davies.    Century  93 :  708-13,  Mar.  1917. 

War  debts  and  tixation.    Rev.  of  Rev.  58:  222-4,  Aug.  1918. 

War  finances;  public  debts  of  each  of  the  chief  belligerents  in  the  first  47 

months  of  the  war.    D.  G.  Rogers.    Cur.  Hist.  Mag.,  N.  Y.  Times, 

8pt.  2:277-9,  Aug.  1918. 


UNITED  STATES 


GENERAL 


American  business  and  finance  after  the  war.    H.  P.  Willis.    Jour.  Pol.  Econ. 

24:  572-95,  June  1916. 
American  finance  and  the  European  war.    H.  P.  Willis.    lour.  Pol.  Econ.  23 : 

114-65,  Feb.  1915. 
American  finance  finds  itself.    New  Republic  3:  323-5,  July  31,  1915. 
American  war  finance.    Li\ing  Age  297:  187-90,  Apr.  20,  1918. 
America's  changing  investment  market.    Ann.  Am.  Acad.  Vol.  68.    Philadel- 
phia, 1916. 
America's  financial  effort.    Living  Age  294:  702-3,  Sept  15,  1917. 
Dislocations  in  the  foreign  trade  of  the  United  States  resulting  from  the 

European  war.    L.  C.  Sorrell.    Jour.  Pol.  Econ.  24:  25-7,  Jan.  1916. 
Effect  of  the  war  on  America's  financial  position.    T.  W.  Lamont    Ann. 

Amer.  Acad.  60:  106-12,  July  1915. 
Financial  situation:  a  general  survey.     F.  W.  Taussig.     .A.nn.  Amer.  Acad. 

75:  1-11,  Jan.  1918. 
Financing  the  war.    A.  Reynolds.   Bankers  Mag.  94:  581-2,  May  1917. 
Financing  the  war.    Ann.  Am.  Acad.  Vol.  75.    Jan.  1918. 
New  era  of  American  international  trade  and  finance.    J.  Clausen.    Bankers 

Mag.  95 :  648-«2,  Nov.  1917. 
New  era  in  national  finance.    Jour.  Pol.  Econ.  23 :  1000-1,  Dec  1915. 
Our  billion  dollar  trade  balance ;  symposium.    Independent  83 :  13-1^,  July  S, 

1915. 
Paying  our  debt  to  Europe.    Bankers  Mag.  89:  615-6,  Dec.  1914. 
Report  of  the  Secretary  of  the  Treasury.    Outlook  111:  876-7,  Dec.  15,  1915. 
Renort  of  the  Treasury.    Nation  99:  706-7,  Dec.  17,  1914. 
Task  of  financing  the  war.    J.  J.  Fitzgerald.    Ann.  Am.  Acad.  75:   12-18, 

Jan.  1918. 
Treasury  financing  for  1918.    Jour.  Pol.  Econ.  26:  744-6,  July  1918. 
Treasury  report  and  war  financf.    Nation  105;  656,  Dec.  13,  1917. 
Treasury  situation.    Jour.  Pol.  Econ.  231 :  286-8,  Mar.  1915. 
Uncle  Sam's  war  money.    C.  F.  Speare.    Rev.  of  Rev.  58:  387-90,  Oct  1918. 
War  and  the  financial  situation  in  the  United  States.    O.  M.  W.  Sprague. 

Quar.  Jour.  Econ.  29:  181-6,  Nov.  1914. 


III 


314 


BIBLIOGRAPHY 


War  finance  and  /\merican  business.    H.  J.  Davenport.    Jour.  Pol.  Econ.  24 : 

97-125,  Feb.  1916. 
War  finance  plans.    A.  D.  Xoyes.    B:inkers  Mag.  94:  508-13,  May  1917. 
Why  the  United  States  must  finance  the  war.    T.  H.  Price.    World's  Work 

30:  564,  Sept.  1915. 


m 


t 


B.ANKING    AND   CUBRENCY 

American  gold  fund  of  1914.    J.  J.  Arnold.    Jour.  Pol.  Econ.  23:  696-706, 

July  1915. 
Currency  depreciation  in  time  of  war.    A.  C.  Whitaker.    Quar.  Jour.  Econ. 

30:  253-78.  Feb.  1916. 
Effect  of  tlie  European  war  on  American  credits.    G.  M.  Reynolds.    Jour. 

Pol.  Econ.  22 :  925-36,  Dec  1914. 
Effect  of  the  war  on  commodity  prices.    I.  Fisher.    Moody  17:  524,  Nov. 

1914. 
Effect  of  the  war  on  new  securities  issued  in  the  United  States.    G.  B.  An- 
derson.   Ann.  Am.  Acad.  68:  118-30,  Nov.  1916. 
Future  banking  problems  of  the  United  States  with  reference  to  the  Euro- 
pean war.    T.  Conway,  Jr.    Pop.  Sci.  86:  392-402,  Apr.  1915. 
Inflation.    E.  W.  Kemmeier.    Am.  Econ.  Rev.  8:  247-69,  June  1918. 
Intern.-itional  trade  under  depreciated  paper,  a  contribution  to  theory.    F.  W. 

Taussig.    Quar.  Jour.  Econ.  31 :  380-403,  May  1917. 
Investment  effects  of  the  war.    Jour.  Pol.  Econ.  25 :  847-8,  Oct.  1917. 
Our  extraordinary  money  market.    W.  J.  Bores.    Nation  107:  238,  Aug.  31, 

1918. 
Outlook  for  1917.    J.  B.  Forgan.    Bankers  Mag.  94:  75-6,  Jan.  1917. 
President's  approval  of  the  war  I'.nance  corporation  act.    Jour.  Pol.  Econ.  26 : 

536-7,  May  1918. 
Report  of  the  U.  S.  Bureau  of  Labor  upon  prices  during  the  early  months 

of  the  war.    C.  H.  d'E.  Leppington.    Econ.  Jour.  26 :  124-8,  Mar.  1916. 
Reserve  banks  and  the  war.    Jour.  Pol.  Econ.  25 :  848-50,  Oct.  1917. 
Situation  of  the  United  States  at  the  close  of  the  European  war,  with  special 

reference  to  the  gold  supply,  with  discussion.    G.  E   Roberts.    Am. 

Econ.  Rev.  7  supp. :  176-98,  Mar.  1917. 
United  States  world  banker  and  commercial  lender.    J.  K.  Barnes.    World's 

Work  35 :  479-80,  Mar.  1918. 
War  finance  and  inflation.    A.  C.   Miller.    Ann.   Amer.   Acad.   75:   113-34, 

Jan.  1918. 
War  finance  corporation.    Jour.  Pol.  Econ.  26:  409-11,  Apr.  1918. 


if 


EXPENDITURES 

Advertising  and  selling  liberty  bonds.    Bankers  Mag.  96:  19S-213,  Feb.  1918. 
American  loans  to  the  Entente  Allies.    H.  P.  Davidson.    Bankers  Mag.  93: 

579-81,  Dec.  1916. 
Anglo-French  ioan.    Bankers  Mag.  91 :  636-7,  Nov.  1915. 


BIBLIOGRAPHY 


31; 


X 

Anglo-French  loan.    A.  W.  Ferrin.    Moody  18:  S2&-30,  Nov.  1915. 

Anglo-French  loan.    Moody  19:  89-91,  Feb.  1916. 

Argument  against   inflation   from  government  loans.    A.   D.   Noyes.    Ann. 

Amer.  Acad.  75 :  135-9,  Jan.  1918. 
Borrowing  as  a  phase  of  war  finance.    O.  D.  Skelton.    Am.  Econ.  Rev    7- 

816-31,  Dec.  1917. 
Completion  of  the  liberty  loan.    Jour.  Pol.  Econ.  25 :  842-3,  Oct.  1917. 
Day  of  financial  reckoning.    S.  N.  Patten.    Moody  19:  37-9,  Jan.  1916. 
Do  government  loans  cause  i'-flation?    J.  H.  Hollander.    Ann.  Am.  Acad. 

75:  105-12,  Jan.  1918. 
Effects  of  bonds  and  taxes  in  war  finance.    R.  G.  Blakey.    South  Atlantic 

Quar.  16:  236-47,  July  1917. 
Executive  responsibility  and  a  national  budget.    N.  M.  Butler.    Proc  Acad. 

Pol.  Sci.  8:  46-9,  July  1918. 
Financing  American  war  orders.    T.  Conway,  Jr.    Ann.  Am.  Acad.  68:  131- 

50,  Nov.  1916. 
Financing  with  war  savings  certificates.    F.  A.  Vanderlip.    Ann.  Am.  Acad. 

75 :  31-7,  Jan.  1918. 
First  United  States  war  loan.    Cur.  Hist.  Mag.,  N.  Y.  Times,  6  pt  2-  17 

July  1917. 
Fighting  dollars.    G.  B.  Mallon.    World's  Work  39:  275-80,  Jan.  1919. 
For  the  upkeep  of  a  statute.    Dunsany.    New  Republic  16:  310,  Oct.  12,  1918. 
Former  war  loans  of  the  United  States,  historical  retrospect.    Cur.  Hist  Mag 

N.  Y.  Times,  8  pt  1 :  421-3,  June  1918. 
Fourth  liberty  loan.    Nation  107:  338,  Sept.  28,  1918. 
Fourth  liberty  lean.    New  Republic  16:  244-5,  Sept.  28,  1918. 
Gold  bonds  of  the  Allies.    C.  F.  Childs.    Nation  106:  379-80,  Mar.  28,  1918. 
Growth  of  war  savings.    F.  A.  Vanderlip.    Rev.  of  Rev.  58 :  167-8,  Aug'  1918^ 
Handling  the  collateral   for  large  foreign  loans.    Bankers   Mag.  94-  26-7 

Jan.  1917. 
How  is  a  war  loan  spent?    G.  A.  Schreiner.    Nation  107:  368,  Oct.  5,  1918. 
Interest  rate  on  the  third  Liberty  loan  and  means  of  stabilizing  the  price 

Rev.  of  Rev.  57:  558-60,  May  1918. 
Investing  your  surplus.    System  34:  606-11,  Oct.  1918. 
Liberty  loan.    Bankers  Mag.  94 :  649^52,  June  1917. 

Li>  ;!?y  loan  and  our  allies.    A.  Pollen.    Everybody's  39:  80-1,  Oct.  1918. 
Loan  to  the  Allies.    A.  W.  Ferrin.    Moody  18:  445-7,  Oct  1915. 
Loans  and  taxes  in  war  finance,  with  discussion.    O.  M.  W.  Sprague.    Am. 

Econ.  Rev.  7  supp. :  199^223,  Mar.  1917. 
Loans  versus  taxes  in  war  finance.    E.  R.  A.  Seligman.    Ann.  Amer.  Acad. 

75:  52-82,  Jan.  1918. 
Loosen  up  for  liberty.    E.  F.  Germo.    Bankers  Mag.  96:  12-17,  Jan.  1918. 
Meaning  of  the  war  savings  movement    Dwig^t  W.  Morrow     Proc  Acad 

Pol.  Sci.  7:  55-8,  Feb.  1918. 
Nationalism  and  international  justice.    O.  S.  Strauss.    Scribner's  64-  441-2 

Oct  1918. 


I 

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f 


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316 


BIUUOGRAIMIY 


New  foreign  security  issues.    A.  W.  Ferrin.    Moody  19:  531-2,  Oct.  1916. 

New  plan  of  interim  war  financing.    Jour.  Pol.  Econ.  26:  309-11,  Mar.  1918. 

New  war  loan.    Jour.  Pol.  Econ.  25 :  621-7.  June  1917. 

Next  war  loan.    A.  D.  Noycs.    Nation  106:  767-8,  June  29,  1918. 

Our  loans  to  Europe.    A.  D.  Noyes.     Scribner's  61 :  131-2,  Jan.  1917. 

Our  war  expenditure  to  date.     Nation  106:  441,  .Apr.  '',  1918. 

Patriotism  and  profits,  a  conversation  about  bonds,     j.   Harvey.    N.   Am. 

Rev.  202 :  641-57,  Nov.  1915. 
Planning  the  third  liberty  loan  campaign.    Bankers  Mag.  96:  359-62,  Mar. 

1918. 
Policy  as  to  foreign  loans.    Jour.  Pol.  Econ.  25:  392-3,  Apr.  1917. 
Problems  relating  to  financing  foreign  governments.    H.  R.  Brand.    Bankers 

Mag.  95:  605-15,  Nov.  1917. 
Raising  new  European  war  loans.    Rev.  of  Rev.  55 :  222-3,  Feb.  1917. 
Reserve  board  advises  investors  to  buy  foreign  bonds.    Moody  20:  116,  Mar. 

1917. 
Reserve  board  and  loans  to  Europe.     Nation  103 :  533-4,  Dec.  7,  1916. 
Saving  for  Uncle  Sam  and  for  yourself.    E.  T.  Mattox.    Rev.  of  Rev.  58:  172, 

Aug.  1918. 
Second  liberty  loan.     Cur.  Hist.  Mag.,  N.  V.  Times,  7  pt  1 :  429-30,  Dec.  1917. 
Should  we  lend  the  Allies  $500,000,000  or  any  other  amount?    C.  T.  Greene. 

Moody  18:  447-9,  Oct.  1915. 
Some  facts  about  the  public  debt.    Bankers  Mag.  94:  244-6,  Mar.  1917. 
Stocks  and  bonds,  war  and  peace.    T.  H.  Price.    World's  Work  31 :  255-8, 

Jan.  1916. 
Taxation  vs.  loans  once  more.    New  Republic  13:  168-9,  Dec.  15,  1917. 
Third  liberty  loan.    Jour.  Pol.  Econ.  26:  411-12,  April  1918. 
Third  liberty  loan  act.    Jour.  Pol.  Econ.  26 :  537-8,  May  1918. 
Third  liberty  loan  oversubscribed.    Cur.  Hist.  Mag.,  N.  Y.  Times,  8  pt.  1, 

419-20,  June  1918. 
Third  war  loan.    A.  D.  Noyes.    Nation  106:  356-7,  460,  Mar.  28,  Apr.  11, 

1918. 
Value  of  the  thrift  campaign.    F.  A.  Delano.    Proc.  Acad.  Pol.  Sci.  7:  727- 

30,  Feb.  1918. 
War  loan  act.    Bankers  Mag.  94:  504-8,  May  1917. 
War  loan  and  the  war  taxes.    Nation  104:  649-50,  May  31,  1917. 
War  loans.    Bankers  Mag.  94:  402-11,  Apr.  1917. 
War  loans  and  the  war.    Outlook  111 :  252-3,  Sept.  29,  1915. 
War  loans  and  war  finance.     Bankers  Mag.  92 :  688-9,  June  1916. 
War  loans,  in''.ation  and  the  high  cost  of  living.     C.  Snyder.    Ann.  Am.  Acad. 

75:  140-6,  Jan.  1918. 
War  savings  campaign  in  the  public  schools.    G.  D.  Strayer.    Rev.  of  Rev. 

58:  167-71,  Aug.  1918. 
War  savings  plan.    F.  A.  Vanderlip.    Fcrum  59:  233-8,  Feb.  1918. 
War  savings  promotion.    Rev.  of  Rev.  56:  671-2,  Dec.  1917. 
War  time  borrowing  by  the  government.    M.  L.  Schifl.    Ann.  Am.  Acad.  75 : 
38-51,  Jan.  1918. 


BIBLIOGRAPHY 


3i; 


TAXATIOX 

Conscription  of  income.    C.  J.  Bullock.    N.  Am.  Rev.  205 :  895-904,  June  1917. 
Conscription  of  income  a  sound  basis  for  war  finance.    O.  M.  W.  Sprague. 

Econ.  Jour.  27:  1-15,  Mar.  1917. 
Conscription  of  mcome.    O.  M.  W.  Sprague,  New  Republic  10:  93-7,  Feb. 

24,  1917. 
Excess  profits  taxation,  the  war  finance  corporation,  and  reconstruction  after 

the  war.    F.  H.  Hankins.    Public  21 :  461-3,  Apr.  13,  1918. 
federal  and  state  war  taxation.    C.  C.  Plehn.    Nation  107 :  314-16,  Sept.  21, 

1918. 
Federal  taxes  upon  income  and  excess  profits,  with  discussion.    T.  S.  Adams. 

Am.  Econ.  Rev.  8  supp.:  18-54,  Mar.  1918. 
Income  tax  rates  and  the  loan.    O.  H.  Kahn.    New  Republic  11:  161-2,  June 

9,  1917. 
Liquidation  taxes.    S.  N.  Patten.    Ann.  Am.  Acad.  75 :  165-81,  Jan.  1918. 
Luxury  taxes.    E.  L.  Bogart.    Bulletin  of  the  National  Tax  Association  4: 

237-239,  June  1919. 
Mr.  McAdoo's  program.    Public  21 :  750-2,  June  15,  1918. 
Mandeviile   in  the  twentieth  century.    S.   N.   Patten.    Am.   Econ.   Rev.  8: 

88-98,  Mar.  1918. 
Mandeviile  in  the  twentieth  century,  a  correction.     Replies  to  S.  N.  Patten, 

by  J.  H.  Hollander  and  E.  R.  A.  Seligman.    Am.  Econ.  Rev.  8:  338- 

49,  June  1918. 
New  revenue  bill.    W.  J.  Boies.    Nation  107 :  305,  Sept.  14,  1918. 
New  taxation.    Jour.  Pol.  Econ.  26:  746-8,  July  1918. 
Publicity  for  income.    Public  21 :  721-2,  June  8,  1918. 
Report  on  coordination  in  taxation.    Am.  Econ.  Rev.  8  supp.:  313-17,  Mar. 

1918. 
Revenue  bill.    New  Republic  16:  183-5,  Sept.  14,  1918. 
Revenue  bill.    Public  21:  1167-9,  Sept.  14,  1918. 

The  taxation  of  wealth.    E.  L.  Bogart.    Bankers  Mag.  95 :  178-183,  Aug.  1917. 
War  revenue  act  of  1914.    H.E.Smith.    South  Atlantic  Quar.  14 :  15-27,  Jan. 

1915. 
War  revenue  act  of  1917.    R.  G.  Blakey.    Am.  Econ.  Rev.  7:  791-«15,  Dec. 

1917. 
War  revenue  act.    E.  R.  A.  Seligman.    Pol.  Sci.  Quar.  33:  1-37,  Mar.  1918. 
War  revenue  and  war  trade.    A.  D.  Noyes.    Nation  106 :  534-5,  May  4,  1918. 
Who  will  pay  the  new  taxes.    C.  Kitchin.    Forum  60:  149-54,  Aug.  1918. 


GREAT  BRITAIN 

GENERAL 

Another  year  of  bad  finance.    Living  Age  297:  636-8,  June  8,  1918. 
British  and  German  war  finance.    Living  Agre  297:  763-4,  June  22,  1918, 
British  association  and  the  finance  of  the  war.    J.  E.  Allen.    Fortn.  Rev. 
104:  958-67,  Nov.  1915. 


! 


s 


318 


lUnLIOCRAl'IIV 


British  experience  for  Americans.    S.  Webb.    Atlantic  Mo.  120:  14-21,  July 

1917. 
British  finance  and  the  European  war.    \V.  M.  J.  Williams.    Ann.  Am.  Acad. 

58:  ''4-S8,  Mar.  1915. 
Britain's  war  tmance  and  economic  future.    J.  E.  Barker.    19th  Century  78: 

123.V62,  \ov.  1915. 
Commercial  and  financial  outlook.     H.  J.  Jennings.     19th  Century  76:  800-15, 

Oct.  1914. 
Economic  endurance.    Edin.  Rev.  222:  204-24,  July  1915. 
Finance  of  the  war.    H.  Cox.    Edin.  Rev.  227:  146-65,  Jan.  1918. 
Financial  and  economic  measures  devised  to  meet  the  huge  cost  of   war. 

T.  L.  Gilmour.    Nation  101 :  377-78,  Sept.  23,  1915. 
Financing  the  war.    Bankers  Mag.  (London)  100:  447-60,  Oct.  1915. 
Financing  the  war.    Bankers  Mag.  (London)  101:  32-42,  Jan.  1916. 
Financing  the  war.    Bankers  Mag.  (London)  101:  377-83,  Mar.  1916. 
Financing  the  war.    R.  RadclyflFe.    Englis'-  Rev.  23 :  472-5,  Nov.  1916. 
Full  official  appreciation  of  the  financial  emergency.     Economist   (London) 

81 :  566-7,  Oct.  16,  1915. 
Great  Britain  pays  the  price.     Sci.  Am.  119:  122,  Aug.  17,  1918. 
Great  Britain's  financial  outlook.    W.  MacDonald.    Nation   107:  64-S,  July 

20,  1918. 
(The)    (jreat   crisis.      Bankers    Mag.    (London).     Monthly   articles. 
How  Britain  financed  the  war.    Nation  102 :  689-90,  June  20,  1916. 
How  can  England  pay  the  bill  ?    J.  A.  Hobson.    New  Republic  3 :  255-7,  July 

10,  1915. 
Parliament  and  finance.    Living  Age  295 :  761-4,  Dec.  22,  1917. 
Problems  of  finance:  £5  15s.  for  £3  17s.  lO^d.    O.  Stoll.    Fo.  .i.  Rev.  109: 

102-6,  Jan.  1918. 
War  and  finance  as  seen  from  London.    F.  V.  Green.    Outlook  113 :  377-80, 

June  14,  1916. 
War  and  wealth.    Living  Age  292:  415-18,  Feb.  17,  1917. 
War  finance.    A.  H.  Gibson.    Bankers  Mag.  '.01 :  43-54.  Jan.  1916. 
War  finance.    Sir  George  Paish.    Jour.  Royal   Stat.  Soc.  79:  267-84,  May 

1916. 
Year's  figures.    Living  Age  297 :  507-9,  May  25,  1918. 

BANKING    AND   CURRENCY 

Banks  and  the  war  crisis.  H.  J.  Jennings.  Fortn.  Rev.  103:  155-68,  Jan. 
1915. 

Increase  in  the  cost  of  food  for  different  classes  of  society  since  the  out- 
break of  the  war.  Frances  Wood.  Jour.  Royal  Stat.  Soc.  79:  501-8, 
July  1916. 

New  English  currency  notes.  E.  M.  Patterson.  Jour.  Pol.  Econ.  23:  252- 
67,  Mar.  1915. 

Prices  of  commodities  in  1914.  Sir  George  Paish.  Jour.  Royal  Stat  Soc. 
78:  281-95,  Mar.  1915. 


i;  I 


BIBLIOGRAPHY 


319 


EXPENDITUU  AND  BUOCR 

Budget.    Bankers  Mag.   (London)  99:  851-58,  June  1915;  101:  7\3-26,  May 

1916:  103:  779-83.  June  1917. 
Budget.    R   Radclyffe.    Englijh  Rev.  22:  506-9,  May  1916. 
Budg't      Spectator  118:  508,  May  5,  1917;  120:  43»-9,  Apr.  27,  1918. 
Budge      nd  the  outlook.    Economist  (London)  81:  510-11,  Oct.  2,  1915. 
(Lei)   budgets  de  guerre  en  Angleterre.    L'Ecoi     fran.  44:  732-4,  May  21, 

1916. 
Conung  budnit.    Spectator  120:  367-8,  Apr.  6,  1918. 
Criticisms  of  tlie  budget.    Economist  (London)  81 :  500,  Oct  ?,  1915. 
Deficit  ahead.    C.  E.  Mallet.    Contemp.  Rev.  113:  369-74,  Apr.  1918. 
Economizing.    W.  Smart.    Spectator  113:  230-1,  Aug.  15,  1914. 
Finance  accounts  of  the  United  Kingdom  for  the  year  1916-17.    E.  Cannan. 

Econ.  Jour.  28:  101-«,  M./.  1918. 
National  expenditure.    J.  A.  R.  Marriott.    Edin.  Rev.  228:  92-106,  July  1918. 
Nation's  balance  sheet:  budget  for   1916-17.    H.  J.  Jennings.    Fortn.  Rev. 

105:  894-906,  May  1916. 
Outpouring  of  public  money.    Spectator  119:  738-9,  Dec.  22,  1917. 
Patriotism  versus  speculation.    Spectator  115:  907-8,  Dec.  25,  1915. 
Real  war  budget.    Spectator  116:  458-9,  Apr.  8,  1916. 
Retrenchment  and  thrift;  reports  of  the  committee  on  retrenchment  in  the 

public  expenditure.    E.  Crammond.    Quar.  Rev.  225:   519-45,  Apr. 

1916. 
Suggested  economy.    Bankers  Mag.  95:  316-17,  Sept.  1917. 
Third  war  budget.     H.  J.  Jennings.     19th  Century  78:  755-^,  Oct.  1915. 
War  bonuses.    Spectator  115:  294-5,  Sept.  4,  1915. 
War  budgets.    J.  E.  Allen.    Fortn.  Rev.  107:  827-37,  May  1917. 
War  expenditure  of   the  United   Kingdom.    W.   H.   Mallock.    Fortn.   Rev. 

104:  2S8-<59,  Aug.  1915. 
War  finance,  the  fifth  war  budget    J.  A.  R.  Marriott.    19th  Century  81 :  1366- 

81,  June  1917. 
War  finance,  the  fourth  budget.    J.  A.  R.  Marriott.    19th  Century  79:  1124- 

42,  May  1916. 
Waste  of  war.    Spectator  113:  790-1,  Dec.  5,  1914. 


LOANS 

American  loan  and  import  duties.    Spectator  115:  433-4,  Oct.  2,  1915. 
Britain's  true  wealth  and  the  unimportance  of  the  war  debt    J.  E.  Barker. 

19th  Century  83:  926-47,  May  1918;  84:  38-58,  July  1918;  84:  888-904 

Nov.  1918. 
British  collateral  loan.    A.  W.  Ferrin.    Moody  19:  485-91,  Sept.  1916. 
Cost  of  the  war.    J.  A.  Hobson  and  others.    19th  Century  78 :  691-728,  Sept 

1915. 
Cost  of  the  war  to  Great  BriUin.    Bankers  Mag.  104:  283-293,  Sept  1917. 
Economics  of  the  war  loan.    A.  C.  Pigou.    Econ.  Jour.  27:  16-25,  Mar.  1917. 


320 


niBl.lfH'.RAI'llY 


•«« 


Con- 


Proc. 


1228, 


1917. 


Empire,  rcs.iurti'.  ilcMlcpiiuMit  ami  Hritiiiii\  war  debt.    J.  H.  Harris. 

tfiiip.  Rtv    112:  65-71.  July  1917. 
EnRUnd's  effort  to  pav  for  the  war  out  of  savinRS.    B.  P.  Blackett. 

Acad.  Pol.  Sii.  7:  715-26,  Feb.  1918. 
England's  luw  war  l..an.     Nation  104:  229-30,  Mar.  1.  1917. 
Great  Britain's  war  debt  and  her  debt  three  years  ago.    Lit  Digeit  S3: 

\nv.  4.  19U>. 
Great  war  loan.    H.  J.  Jennings.    Fortn.  Rev.  104:  203-17,  Aug.  1915. 
Last  week  of  tlie  war  loan.     Spectator  118:  160-1,  Feb.  10,  1917. 
Lcs-on  of  the  war  loan.     R.  R:i.Ulyffe.     English  Rev.  24:  280-4.  Mar. 
Loans  and  subsidies  in  time  of  war,  1793-1914.    J.  H.  Clapham.    Econ.  Jour. 

27:  495-501,  Dec.  1917. 
\:iti.inal  lin:inc.',  the  second  war  loan.     Candid  Quar.  Rev.  7:  673-94,  Aug. 

1915. 
National  war  bonds.    Spectator  119:  351-2,  Oct.  6,  1917. 
New  British  '         announced.     Bankers  Mag.  93 :  458-9,  Nov.  1916. 
New  liritish  loan.    C.  Franks.     Moody  19:  59.M,  Nov.  1916. 
New  government  loan.     Bankers  Mag.  (London)   104:  509-17.  Nov.  1917. 
New  national  loan.    Bankers  Mag.  (London)  103:  179-91,  Feb   1917. 
New  United  Kingdom  five  and  a  halfs.     Moody  20:  lOO-l,  Feb.  1917. 
New  war  loan.     Spectator  114:  882-3,  June  26,  1915. 
New  war  loan.     Si«ctator  118:  38-9,  Jan.  13,  1917. 
Our  national  debt.    H.  J.  Jennings.    Quar.  Rev.  227:  160-77,  Jan.  1917. 
Paying  for  the  war.     L.  C.  Money.     English  Rev.  21:  51-67,  Aug.  1915. 
I'.iying  for  war  by  loans.     C.  F.  Bickerdike.     Econ.  Jour.  25:  433-42,  Sept. 

1915. 
Premium  bonds.     R.  Radclyffe.     English  Rev.  24 :  378-80,  Apr.  1917. 
Premium  bonds.     Spectator  120:  53-4,  Jan.  19,  1918. 
Rate  of  interest  on  British  and  foreign  investments.    R.  A.  Lehfeldt. 

Royal  Stat.  Soc.  78 :  452-3.  May  1915. 
Recent  loan  to  Grc.it  Britain.    Bankers  Mag.  93:  293-4,  Oct.  1916. 
Speeding  the  silver  bullets.  Great  Britain's  problems  of  war  finance. 

Freeman.    Rev.  of  Rev.  52:  720-6.  Dec.  1915. 
Success  of  the  war  loan.     Bankers  Mag.   (London)   100:   11^37,  July  1915. 
Thousand  millions.    Spect.itor  118:  263-4.  Mar.  3,  1917. 
War  debt  and  future  peace.    J.  E.  Davics.    Century  Mag.  93:  706-13.  Mar. 

1917. 
War  in  relation  to  British  fo.eign  investments.    C.  K.  Hobson.    Econ.  Jour. 

25 :  244-55.  June  1915. 
War  loan.    R.  Radclyffe.     English  Rev.  24:  181-4.  Feb.  1917. 
War  loans  and  the  pas's-book  system.     H.   A.   Gibson.    Bankers  Mag.  102: 

299--307.  Sept.  1916. 
War  savings  in  Great  Britain.    Bankers  Mag.  (London)  105:  87-93,  Jan.  1918. 
War  savings  movement  in  Notts.     19th  Century  84:  150-9,  July  1918. 
Ways  and  means.    H.  S.  Foxwei..    Econ.  Jour.  26:  1-19,  Mar.  1916. 
What  of  the  budget?    Candid  Quar.  Rev.  10:  395-411,  May  1916. 
Why  not  a  currency  loan?    H.J.Jennings.    19th  Century  78:  1225-.12,  Dec. 
1915. 


Jour. 


L.  R. 


iO 


BIBUOGRAPHY 


321 


TAXATION 

riccr  a„,l  the  revenue.    Fortn.  Rev.  103:  8*^906.  May  191S 

18    lib-  ""'   '"  **'"'°"-    ^^""°'""'   <'-°"<'->   «'=  «»-'.  Sept 
Caphal  '-^p;h«^^-n»cr,p.ion  of  wealth.    J.  E.  Allen.    Fortn.  Rev.  109:  23». 

Coming  taxation.    J.  A.  Hol„on.    Contimp,  Rev.  108:  284-95    Seot  191i 
Con.cr.pt,on  of  capital.    Living  Age  296:  186-9.  J.n.  19   ms       ^ 
Con,cr,pt.on  of  wealth.    J.  A.  R.  Marriott.    19.h  Ceniury  83:  24W2.  Feb. 

Conscription   of  wealth,   right  and   wrong   way.     T    C    T«vl«,     r    . 

Rev.  112:  63<mM.  Dec.  1917  ^ '"'    '^°"t«»P- 

Co.,  of  -;:,;»>«^;;-it|^of  .upertaxation.    W.  H.  Mallock.    19th  Century  78: 

Death  duj«  and  income  tax.    H.  B.  Hapgood     19th  Century  79:  22(M,  Jan. 

Wpenses  et  re«ource5  de  guerre.    L'Econ.  fran.  44:  395-97.  Mar  25   1916. 
Distribution  of  the  burden  of  war  charges     A    C    Pio™      r    T  n 

109:  429-36,  Apr.  1916.  *""•    ^°"'""P-  Rev- 

Difficulties  of  income  taxpayers  and  the  hardships  of  stockholder.     P,„„^ 

mist  (London)  81 :  444-5.  Sept   18   1915  't^^^^olders.    Econo- 

Double  income  tax.    Economist  (London)  83:  447-8.  Sept  9   1916 
Double. ncome  tax.    Economist  (London)  83:  1212-^,  Dec.  3^1916 
Double  income  tax.    Graham  Bower.    Economist  (Lo;don)  S:  SlO.  Sep,^ 

Economy'and  finance  of  the  war.    A.  C  Pigou.    Econ.  Jour.  26:  223-7.  June 

England's  programme  of  war  taxation.    Nation  101    399l400  S,„f  -i  loie 
Estimate  of  the  capita,  wealth  of  the  United 'Ig^-'Lu  Zds 
J.  C.  Stomp.    Econ.  Jour.  28:276-86.  Sept.  19ia  »«  "anas. 

Excess  profi^ts^  duty.    P.  A.  Lealce.    Economist   (London)   83:  873^.  Nov. 

Excess  p^s  ;^- P>ai-tatement  of  its  scope.    Economist  (London)  81: 

Great  Britain's  finances;  heavy  war  toxes  levied.  Cur.  Hist  Mag  N  Y 
Times,  8  pt.  1 :  432-4.  June  1918.  *•      '  ^• 

Great  Britain's  national  revenues  and  expenditures  for  the  fiscal  year  1916- 
17.    Econ.  World.  May  26.  1917,  pp.  737-4i  ^ 

Home  railways  and  income  tox.    Economist   (London)  80:  42^7.  Feb.  27. 

How  Britoin  pay*  her  war  bills.    Rev.  of  Rev.  52:  727-8,  Dec   1915 

How  to^pay  for  the  war.    J.  E.  Allen.    Contemp.  ReC.  106:   7SSMi5.  Dec. 


niBLIOGRArilY 


\ 


Income  tax  abatements  of   life  insurance  premiums.     Economist   (London) 
80:  1197-98,  June  12.  1915.  „,  r    t  . 

Income  tax  and  national  service.  E.  C.  Clark.  19th  Centurj-  78:  83-5.  July 
1915. 

Income  tax  as  war  tax.    Candid  Quar.  Rev.,  Nov.  1914.  pp.  961-74. 

Lettre  d'Angleterre.  la  loi  de  finances  et  le  regime  de  I'lncome  tax  .  .  • 
la  taxation  du  capital.    L'Econ.  fran.  43:  599-^1,  Nov.  6.  1915^ 

Life  assurance  companies  and  income  tax.  Economist  (London)  83:  873^, 
Nov.  4.  1916. 

Lists  of  American  securities  subject  to  special  British  income  tax  Com- 
mercial and  Financial  Chronicle,  June  24.  1916.  p.  2312;  July  8,  p. 
113;  July  15,  p.  206;  Aug.  5,  p.  465:  Aug.  12.  p.  456. 

Paying  for  the  war     F.  Temple.    English  Rev.  26:  168-76.  Feb.  1918^ 

Plea  for  higher  income  tax.    A.  C.  Pigou.    Contemp.  Rev.  113:  35-9.  Jan. 

1918 
Principles  of  war  taxation.    H.  J.  Jennings.    Fortn.  Rev.  109:  88^98.  June 

Relationship  between  loans  and  taxes  in  war  finance.    O.  M.  W.  Spraguo. 

Ann.  Am.  Acad.  75:  83-9.  Jan.  1918. 
Revelations  of  the  budget.    A.  S.  Kurd.    Fortn.  Rev.  104:  856-72.  Nov.  19  S. 
Sources  and  methods  of  paying  for  the  war.    A.  C.  Pigou.    Contemp.  Rev. 

108:  706-17,  Dec.  1915. 
Special  levy  to  discharge  war  debt.    A.  C.  Pigou.    Econ.  Jour.  28.   135-56. 

Taxatioi^vc^rsus  bond  issues  for  financing  the  war.     E.  D.  Durand.    Jour. 

Pol.  Econ.  25:  888-916.  Nov.  1917.  .,„  „  „       ,,   ,„„ 

Taxation  versus  loans  once  more.    New  RePublicU :  168-9  Dec  15   1917. 
Taxing  wages  and  war  profits.    Spectator  IH:  840-1.  June  19.  1915. 
War  debts  and  taxation.    Rev.  of  Rev.  58:  222-4   Aug^  1918_ 
War.  or  scientific  taxation.    C.'H.   Ingersoll.    Ann.  Am.  Acad.  61.  252-^. 

War  proWen.s'!I.d  how  to  meet  them.    C.  Kinloch-Cooke.    Fortn.  Rev.  104: 

War  taxltibt\n^Gr«i*  Britain.    O.  M.  W.  Sprague.    New  Republic  11:  42^. 

War  taxSn^fnd  tend  issues.    Bankers  Mag.  95:  486-7.  Oct.  1917. 

BRITISH  EMPIRE 
Australian  Commonwealth  finance.    Economist  (London)  80:  1S:M.  Jan.  23. 

AustralianVederal  income  tax.    Ec.nomi.  (L-''-)  «^^; ^'^^^ ^s''' 
Australian  public  finances.    Economist  (London)  81 .  2^5   Aug.  2  .  19  5. 
Australian  public  finances.    Economist  (London)  ffi:  100-1.  Jan.  15.  1910^ 
Budget;  taxation  of  war  profits,  labor  politics.    Economist   (lx,ndon)   83. 

Canada's  ttial'pii's.    W  J.  A.  Donald.    Jour.  Pol.  Econ.  23:  75:^90. 
Oct.  1917. 


BIBLIOGRAPHY 


323 


Canada's  four  v<ars  of  war  effort.    Cur.  Hist.  Mag.,  N    Y.  Times,  8  pt  2: 

451-S,  hept  1918. 
Canadian  war  finance.    O.  D.  Skelton.    Am.  Econ.  Rev.  7:  816-31,  Dec.  1917. 
Federal  finance.    O.  D.  Skelton.    Queen's  University,  Kingston,  Ont.,  Dept 

of  History  and  Political  and  Economic  Science,  Bulletin  No.  16.  July 

1915. 
Minister  of  finance.    W.  L.  Edmonds.    Canadian  Mag.  48:  385-90,  Feb.  1917. 
Taxation  of  miniin  companies.    Canadian  Mining  Jour.  37 :  161-4,  1916. 
War  finance  in  Canada.    Cur.  Hist.  Mag.,  N.  Y.  Times,  8  pt  2 :  72,  July  1918. 
War  from  the  financial  standpoint  of  Canada.    E.  Walker.    Moody  20-  135- 

8,  Mar.  1917. 
War  profits  taxation  bill.    Economist  (London)  83:  64-5,  July  1916. 

FRANCE 

GBNEXAL 

Die  franzosischen  Finanzen  in  der  Kriegszeit.  H.  Gramer.  Jahrbrucher  fur 
Nationalokonomie  und  Statistik,  Bd.  104  (Folge  3,  Bd.  49).  337-43 
1915. 

Financial  effort  of  France  during  the  war.  J.  F.  Bloch.  Ann.  Am.  Acad. 
75:  201-6,  Jan.  1918. 

How  France  pays  her  war  expenses.     Lit.  Digest  51 :  814.  Oct.  9,  1915. 

Lifesprings  of  France.    S.  Dewey.    Nation  102:  128,  Feb.  3,  1916. 

War  and  French  finance.    E.  Julheit    N.  Am.  Rev.  203:  726-38,  May  1916. 

BANKING  AND  C<»>ENCY 

(La)  situation  de  la  Banque  de  France  et  les  finances  publiques.    L'Econ. 

fran.  42,  pt  2:  395-6,  Oct  1914. 
(La)  situation  economique  de  la  France.    L'Econ.  fran.  43:  S4S-6.  Apr.  24 

1916. 
Private  savings  as  a  war  weapon     A.  Ribot    Cur.  Hist  Mag.,  N.  Y.  Times, 

5:  662-5,  Jan.  1917. 

BxryNDinntis 

(Les)  credits  provisoires  pour  le  troisieme  trimestre  de  1916.    L'Econ   fran. 

4«:731-32,  May27,  1916. 
Depenses  et  ressources  de  guerre.    iJEcon.  fran.  44:  39S-7.  Mar.  25,  1916. 
Esquisse  d'un  programme  d'^conomies  Sudgetaires.    G.  Schelle.    Jour,  des 

Econ.,  sirie  6,  49:  69,  Jan.  1916. 
Financial  position:  1914  budget  returns.    Economist   (London)   80:   189-90. 

Jan.  30,  1915. 


LOANS 

France's  loan  of  victory.    Outlook  111:  818-19.  Dec.  8,  1915. 

French  war  finances.    A.  Selwin-Brown.    Moody  19:  525-9,  Oct.  1916. 


324 


BlBLIOGRAl  UY 


(The)  loan;  taxation  of  war  profits.    Economist  (London)  82:  140-1,  Jan. 

22.  1916. 
Market  form,  treasury  bond  issue;  taxation  and  trade  returns.    Economist 

(London)  80:  318-19,  Feb.  20,  1915. 
New  French  loans.    G.  E.  Barrett.    Moody  19:  SS7-60,  Nov.  1916. 
Quiet  market,  the  American  loan,  tax  revenue.      Economist  (London)  81: 

585-6,  Oct.  16,  1915. 


Ji. 


,  1, 


TAXATION 

L'application  de  I'impot  sur  le  revenu.    L'Econ.  f ran.  44 :  141-4,  Jan.  29,  1916. 
L'applicat^on  de  I'impot  sur  Ic  revenu.    Felic  Fr6dault    Jour,   des  Econ., 

serie  6,  49:  388-394. 
L'application  de  la  loi  reformant  I'impot  foncier  non  bati.    Edouard  Payen. 

LEcon.  fran.  43:  428-30,  Oct.  2,  1915. 
(The)  bourse,  the  excess  profits  tax.    Economist,  (London)  83:  63-4,  July 

1916. 
Circulaire  relative  a  I'in-pot  sur  le  revenu.    L'Econ.  fran.  44:  514-19,  Apr. 

15,  1916. 
(La)  contribution  direct  pour  1917.    L'Econ.  fran.  44:  151-2,  July  29,  1916. 
(Les)  contributions  directes  et  les  taxes  assimilees  a  Paris  et  dans  le  departe- 

ment  de  la  Seine.    J.  Normand.    L'Econ.  fran.  43:  104-5,  Jan.  23, 

1915. 
(La)  contribution  sur  les  benefices  de  guerre.    L'Econ.  fran.  44:  92-4,  July 

15,  1916;  124-6,  July  22,  1916. 
(Die)  direkten  Steuern  Frankreichs  und  ihre  Reform.  Emanuel  Hugo  Vogel. 

Finanz  Archiv.  Jahrg.  31:  497-624,  1914;  32:  364-426,  1915. 
Exemptions  d'impots  directs,  motives  par   I'etat  de  guerre.     F.  Overland. 

Jour,  des  Econ.,  serie  6,  45 :  40-2,  Jan.  1915. 
La  hauscc  des  prix  et  les  projets  de  taxation.    A.  Souchon.    Revue  politique 

et  parlementai- -  86:  167-82,  303-5. 
(The)  income  tax.    Economist  (London)  82:  36-7,  Jan.  8,  1916. 
Impot  general  sur  le  revenu  (tables).    L'Econ.  fran.  44:  774-5,  June  3,  1916. 
L'impot  general  sur  le  revenu.    L'Econ.  fran.  44:  35-7,  Jan.  8,  1916. 
L'impot  general  sur  le  revenu.    Etiene  Falck.    Jour,  des  Econ.,  sirie  6,  50: 

403-14,  June  1916. 
Les  impots  somptuaires.    La  Revue,  serie  8,  115:  243-53. 
L'impot  sur  Ic  revenu.    L'Econ.  fran.  44:  131-2,  Jan.  29,  1916. 
L'impot  sur  le  revenu  et  la  declaration.    Arthur  Girault.    Jour,  des  Econ., 

serie  6,  50:  53-62,  Apr.  1916. 
L'impot  sur  le  revenu.     Necessite  d'une  methode  fiscale  qui  menage  I'avenir. 

LEcon.  fran.  44:  887-8,  Dec.  30,  1916. 
L'impot  sur  le  revenu  d'apres  un  economiste  americain.    Hubert  Vallerotix. 

Reforme  sociale,  serie  7.  10  (tome  60)  :  227-38. 
Money  market,  the  war  profits  tax.    Economist  (London)  82:  265,  Feb.  12, 

1916. 
(The)  new  government,  douziemes  provisoires;  net  taxation  proposals,  etc 

Economist  (London)  83:  1176-8,  Dec.  23,  1916. 


BIBLIOGRAPHY 


325 


(The)  new  French  taxation.    Economist  (London)  84:  132-4,  Jan.  27   1917 

New  taxation,  ett    Economist  (London)  83:  1041-2,  Dec.  2,  1916. 

New  taxes,  etc.    Economist  (London)  83:  1084-85,  Dec  9,  1916. 

(Les)  nouveaux  impoU  projetes;  I'impot  sur  les  b^ifices  d'e  guerre.    L'Econ 

fran.  44:  743-5,  Dec.  2,  1916. 
(Le)   nouvel  impot  sur  la  propriite  fonciere  non  batie.    Edouard  Payen 

L'Econ.  fran.  43 :  324-6,  Mar.  13,  1915. 
(U)  projet  de  loi  des  crWits  provisoires  et  les  augmentations  des  impots. 

LEcon.  fran.  44:  741-7,  May  27,  1916. 
Projet  de  loi  relatif  i  la  contribution   .ur  les  benefices   exceptionnels   de 

guerre.    L'Econ.  fran.  44:  111-2,  Jan.  22,  1916;  163-S.  Feb.  5,  1916 
Le  projet  dugouvernement  sur  le  regime  fiscal  de  I'alcohol.    L'Econ.  fran 

43:  299-300,  Sept  4,  1915. 
Le  produit  des  contributions  indirectes  en   1915.    L'Econ.   fran    44-  333-4 

Sept.  2,  1916.  ' 

Rapport  de  la  commission  du  budget  su:  le  projet  relatif  i  la  taxation  des 

b«n«fices  de  guerre.    L'Econ.  fran.  44:  206-7,  Feb.  12,  1916 
The  *'"Jj"'«^^>t'on  returns,  position  of  industry.    Economist  (London) 

U  situation  finandere  de  la  France,  impoU  et  emprunts.    L'Econ    fran   43- 
131-2,  Jan.  30,  1915. 

Taxation  returns;  the  rising  cost  of  the  war.    liconomist  (London)  82-  1146. 
June  17,  1916. 

Taxation  rehmis,  vintage  prospects,  the  coal  supply.    Economist  (London) 

81 :  293,  Aug.  21,  1915. 
(Les)  troisiemes  douziemes  provisiores  de  1916  et  le  projets  d'impots     Yves 

Guyot.    Jour,  des  Econ.,  sirie  6,  SO:  353-75,  June  1916 
(Les)    trois   taxes   nouvelles;    I'impot   sur   les   b<n<fices   exceptionnels   de 

guerre.    L'Econ.  fran.  44:  259^^54,  Feb.  26,  1916. 

RUSSL^ 

GGNEKAL 

During  a  Russian  crisis.    Nation  105:  326-7,  Sept  20,  1917 

Financial  Russia.    R.  Dean.    Bankers  Mag.  95 :  61-5,  July  1917. 

Russian  finances.    Economist  (London)  80:  66-7,  Jan  9  1915 

Present  ^finandal^position  of  Russia.    J.  Y.  Simpson,    'contemp.  Rev.  Ill: 

Russian  war^finances.    M.  P.  Price.    Economist  (London)  81:  405-6,  Sept 

Russia's  future  need  for  capital    S.  McRoberts.    Ann.  Am.  Acad.  68- 207-15 
Nov.  1916.  ' 

Russia's  war  finance.    A.  L  Shingarev.    Russian  Rev.  4:  44-63  Apr  19ia 
Some  facts  about  Russia.    Moody  19:  587-91,  Nov.  1916. 


326 


BIBUOr.RAPIlY 


11 


J! 
t  1 
)  , 

'( ■  ■ 


JVV 


m^ 


OnOtENCY   AND  BANKING 

Russian  exchange.    E.  G.  Diefenbach.    Investment  Weekly  19:  lfr-19,  June 
Russia  and  Ihe  markets.    A.  D.  Noyes.    Nation  105:  646.  Dec.  6,  1917. 

EXPENDITURE  AND  BUDGET 

(Le)  budget  et  les  finances  de  guerre  de  la  Russie.    M.  Lauwick.    Revue 

politique  et  parlementaire  86 :  48-60,  1916. 
(Le)  budget  russe  de  1915.    L'Econ.  fran.  43:  230-2  Feb  20  1915. 
Russian  budget  and  finances.    M.  P.  Price.    Economist  (London)  80:  711-12. 

Russian  budget 'and  prohibition.    A.C.Robinson.    Spectator  117:  623.  Nov. 
18,  1916. 

U)ANS 

Bolshevik  repudiation.    H.  J.  Jennings.    Fortn.  Rev.  109:  42ftJ7.  Mar.  1918. 
Russian  credit.    Living  Age  297:  573-4,  July  1,  1918. 
Russian  debt.    A.  L.  Priddy.    Moody  19:  205-7,  Apr.  1916. 
Russian  loan.    A.  W.  Ferrin.    Moody  19:  37^,  July  1916^ 
Russia's  business  morals.    World's  Work  34:  20-1,  May  1917. 

TAXATION 

Income  tax;  high  prices,  etc.    Economist  (London)  83:  686-87,  Oct  21,  1916. 
(La)   reform  financiere  en  Russie.     M.  Lauwick.     Jour,  des  Econ.   serie  6, 
50:  32-47,  Apr.  1916. 

ITALY 

GENESAL 

Cost  of  the  war  in  Italy.    Economist  (U>ndon)  81:  Sfi;  N°v^27.  1915^ 
Finances  ae  guerre.    R.  Dalla  Volta.    ^'Econ.  f ran.  44 :  323-»,  Sept^  im 
Financial  and  economic  situation  in  Italy.    H.  Edmiston.    Nation  104.  Z8Z, 
Mar.  8.  1917.  ^     ^    _,    ,„  ., 

Financial  problems  of  Italy.    F.  Quattrone.    Ann.  Am.  Acad.  75:  ZI7-.il. 

Jan.  1918.  , .       .  .     ,         _      ,  __^ 

Industrial  position  of  Italy.    B.  Attolico  and  F.  Giannmi.    Jour.  Royal  Stot 

Soc.  81 :  449-485,  May  1918. 
Italian  finance  and  trade.    Economist  (London)  83:  1224,  Dec.  30,  1916. 
Italian  war  finance.    Economist  (London)  81 :  S75-6.  Oct   16   1915^ 
Itahan  war  finance.    Economist  (London)  82:  403-4,  Feb.  26.  1916. 
PrVolemc   fin?nziere   della  guerra.     Giornalc   degli   econom.sti    (Roma)    51: 

409^2,1915:52:212-45,1916. 
War  finance.    Economist  (U>ndon)  83:  147-«,  July  22,  1916^  „  ,  ^  ,on 
War  finance  in  Russia  and  Italy.    Economist  (London)  81 :  789,  Oct.  30. 191S. 


BIBLIOGRAPHY 


327 


BUDGET    AND    EXPENDITURE 

Le  budget  italien.    Lorenzo  Pisani.    Jour,  des  Ecoa,  terie  6,  49:  401-2, 

Mar.  1916. 
The  Italian  budget  and  the  loan.    Economist  (London)  80:  56-7,  Jan.  9, 1915. 

TAXATION 

The  limitations  of  dividends  and  taxation  of  war  profits.    Economist  (Lon- 
don) 83:  1000-1,  Nov.  25,  1916. 

GERMANY 

GENEBAL 

Cost  of  the  war  to  Germany.    C.  W.  Guilleband.    Econ.  Jour.  27:  270-7, 

June  1917. 
(Les)  finances  de  i'empire  allemand.    Arthur  Raffolovich.    Jour,  des  Econ., 

8<rie  6,  62-8,  Oct.  1916. 
Financial  condition  of  Germany.    L.  Zimmermann.    Moody  20:  57,  Jan.  1917. 
German  economics  and  the  war.    H.  C.  Emery.    Yale  Rev.  N.  S.  4:  247-66, 

Jan.  1915. 
Gtrman  war  finance  in  1914.    A.  Loveday.    Econ.  Jour.  26:  44-56,  Mar.  1916. 
German  war  finance.    M.  C.  Going.    Jour.  Pol.  Econ.  24:  513-46,  June  1916. 
German  war  finance.    Rev.  of  Rev.  54 :  436-7,  Oct  1916. 
Germany's  ability  to  finance  the  war.    R.  G.  Usher.    Atlantic  Mo.  114:  738- 

47,  Dec  1914. 
Germany's  financial  difficulties.    F.  J.  Whiting.    Nation  104:  284-6,  Mar.  8, 

1917. 
Germany's  financial  mobilization.    L.  Bendix.    Quar.  Jour.  Econ.  29:  724-47, 

Aug.  1915. 
Germany's  financial  outlook.    H.  J.  Jennings.    19th  Century  83:  374-85,  Feb. 

1918. 
(Germany's  financial  problems.    New  Republic  15:  4-5,  May  4,  1518. 
Germany's  financial  resources.    New  Republic  4:  114-15,  Sept.  4,  1915. 
Germany's  war  financing.    World's  Work  36-  345-6,  Aug.  1918. 
How  cheaply  Germany  has  fought  the  war.    A.  Cheradame.    Atlantic  Mo. 

120:  663-8,  Nov.  1917. 
How  much  Germany  has  won  in  the  war.    Atlantic  Mo.  120:  669-79,  Nov. 

1917. 
How  Germany  and  Austria-Hungary  are  financing  the  war.    Rev.  of  Rev. 

51 :  223-5,  Feb.  1915. 
How  Germany  can  pay.    F.  Gribble.    19th  Century  79:  1143-56,  May  1916. 
How  long  can  German  credit  hold  out?    R.   Radclyffe.    Living  Age  288: 

441-4,  Feb.  12.  1916. 
(Die)    Kriegskosten   Deckung  und   ihre   Quellen.    Alfred    Lansburgfa.    Die 

Bank,  Berlin,  1914,  pp.  109,  1098-1115. 
War  finances  of  Germany.    W.  E.  Lagerquist    Moody  19:  561-6,  Nov.  1916. 


M 


I  -i 


li 


328 


BIBLIOGRAPHY 


BANKING  AND  CURUNCY 

Curious  incident,  decline  in  Berlin  exchange.    Nation  101 :  699,  Dec.  9,  1915. 
Fall  in  German  exchange.    M.  J.  Bonn.    Quar.  Jour.  Econ.  31 :  108-27,  Nov. 
1916. 

EXPENDITURES    AND   BUDGET 

Balance  sheet.    Outlook  110:  783-85,  Aug.  4,  1915. 

Depenses  et  ressources  de  guerre.    L'Econ.  fran.  44:  395-7,  Mar.  25,  1916. 
Dr.  HelflFerich's  finance  speech.    Economist  (London)  82:  615-16,  Apr.  1916. 
L'cxpose  budgetaire  de  M.  Ilelfferich.    Arthur  Raffolovich.    Jour,  des  Econ., 

serie  6,  46 :  89-97.  Apr.  1915. 
L'expos*  financier  de  M.  Helfferich  pour  1916-17.    Arthur  Raffolovich.  Jour. 

des  Econ.,  serie  6,  50:  48-50,  Apr.  1916. 

LOANS 

Dr.  Helfferich's  speech  on  the  new  German  war  loan.    Economist  (London) 

81 :  358-60,  Sept.  4,  1915. 
Second  German  war  loan.     Candid  Quar.  Rev.  No.  6:  422-27,  May  1915. 

TAXATION 

German  war  taxation.    R.  C.  Long.    English  Rev.  18:  204-15,  Sept.  1914. 
L'imposta   prussiano   sull'entrata    (Einkommensteur).     Riforma   sociale  25: 
613-710,  1914. 

(Der)   neue  Tabaksteuerentwurf.     Herman  Molkenbuhr.     Neue  Zeit,  Stutt- 
gart, Jahrg.  34,  1916,  Bd.  1,  pp.  769-75. 

(The)  sales  tax— a  German  experiment.    Economist  (London)  83:  1216-17, 
Dec.  30,  1916. 

(La)   taxation  des  vivres  en  Allemagne.    E.  d'Eichthal.    Revue  des  science 
politiques  35 :  106-10,  1916. 

OTHER  BELLIGERENTS 

Austrian  war  finance.    Economist  (London)  81 :  1048,  Dec.  28,  1915. 

Les  depenses  de  guerre  de  la  monarchic  austro-hongroise.    Revue  d'economie 

politique  31 :  111-137. 
War  and  Austro-German  finance.    B.  Villiers.    Contemp.  Rev.  107:  584-92, 

May  1915. 
Effect  of  the  war  on  Japanese  finance.    J.  Soyeda.    Econ.  Jour.  26:  297-305, 

Sept.  1916. 
Emergency  financial  measures  of  Japan.    S.  Takashima.    Jour.  Pol.  Econ, 

26:  302-7.  Mar.  1918. 
Finance  and  economics  in  Japan.    Bankers  Mag.  (London)  101:  301-4,  Feb. 

1916. 
Finance  and  economics  in  Japan.    Bankers  Mag.  (London)  103:  600-2,  Apr. 

1917. 
Turke/s  finances  and  foreign  bondholders.    Economist  (London)  80:  53-4, 

Jan.  9,  1915. 


i 

Ji 

BIBLIOGRAPHY 


329 


Turkey's  financial  position.    A.  Ruppin.    Econ.  Jour.  27:  417-20,  Sept  1917. 
Kriegszeit-reden  schwcizerischer  Bundesrate.     La  voix  des  chers  en  temps 

de  guerre,  Zurich,  1915. 
Kriegssteuer  und  Monopole  in  der  Schweiz.     Dionys  Zuemer.     Neue  Zeit 

Jahrg.  33,  191S,  Bd.  2,  pp.  540-S. 
War  taxation  in  Swiuerland.    Economist  (London)  80:  582,  May  1,  1915. 
War  and  public  finance  in  South  America.    C.  L.  Jones.    Jour.  Pol.  Econ  23 : 

791-806,  Oct.  1915. 


CASUALTIES 
Casualties.    Spectator  114:  804,  June  12,  1915. 
Casualistry.    Spectator  117:  497-9,  Oct  28,  1916. 
Casualties  of  belligerents.    Cur.  Hist  Mag.,  N.  Y.  Times,  8  pt  2:  279-90. 

Aug.  1918. 
Casualties  for  a  big  oflFensive.    Sd.  Am.  118:  469,  May  18,  1918. 
Casualties  in  the  European  war.    F.  G.  Jackson.    New  Republic  5 :  198.  Dec. 

25,  1915. 
Cost  of  the  big  push.    Lit  Digest  53:  602,  Sept  9,  1916. 
Estimate  of  German  losses.    Sci.  Am.  114:  420,  Apr.  22,  1916. 
Estimate  of  the  armies.    Independent  86 :  12,  Apr.  3,  1916. 
Estimates  of  war  casualties.    Cur.  Hist  Mag.,  N.  Y.  Times,  6  pt  2:  427-9 

Sept  1917. 
German  losses.    G.  Morgan.    New  Republic  5:  71-2,  Nov.  20,  1915. 
German  losses  on  all  fronts.    Cur.  Hist.  Mag.,  N.  Y.  Times,  8  pt  1  •  431 

June  191& 
German  war  losses.    Cur.  Hist  Mag.,  A.  Y.  Times,  7  pt.  1 :  62,  Oct.  1917. 
Germany's  huge  casualties.    Lit  Digest  54:  810,  Mar.  24,  1917. 
Human  capital  and  the  cost  of  the  war.    Harold  Boag.    Jour.  Royal  Stat 

Soc.  79:  7-17,  Jan.  1916. 
Human  losses  in  the  war.    Copenhagen  Society  for  the  Study  of  the  War, 

Bulletin  2,  Aug.  1,  1916. 
Life  risks  in  the  great  war.    F.  A.  Collins.    Outlook  119:  367,  July  3,  1918. 
Losses  of  the  war.    Independent  88:  443,  Dec.  11,  1916. 
Low  mortality  rates  in  this  war.    World's  Work  34:  S92-3,  Oct  1917. 
Price.    Living  Age  291:  369^73,  Nov.  11,  1916. 
War's  toll.    International  Socialist  Rev.  17:  618,  Apr.  1917. 
What  the  war  is  costing  in  men.    Lit  Digest  53:  1159-60,  Nov.  4,  1916. 
Why  Germany  is  losing  the  war ;  the  remorseless  draining  of  her  reservoir 

of  man  power.    Sci.  Am.  117:  449,  Dec.  15,  1917. 

DESTRUCTION  OF  PROPERTY 
Abomination  of  desolation,  an  episode  in  France.    Cur.  Hist  Mag    N    Y 

Times.  8  pt.  1 :  486-7,  June  1918. 
Confiscation  of  enemy  property.    Spectator  118:  195-6,  Feb.  17    1917. 
Desolation  in  the  French  war  zone.    E.  Carson.    Cur.  Hist.  Mag.,   N    Y. 

Times,  7  pt  1 :  456-7.  Dec.  1917. 


330 


BIBLIOGRAPHY 


w 


A  German  on  German  iniquities.    Nation  105 :  310,  Sept.  20,  1917. 

German  vandalism  during  the  retreat  in   France.    Cur.  Hist.  Mag.,  N.  Y. 

Times,  6:  317-27,  May  1917. 
Nothing  i*  lost;  reconstruction  and  evacuation  in  northern  France.    E.  S. 

Sargeant.    Century  96:  721-32,  Oct.  1918. 

SHIPPING  LOSSES 

Allied  and  neutral  shipping  losses.    Sci.  Am.  117:  110,  Aug.  18,  1917. 
Admiralty  summary  of  shipping  losses.    Cur.  Hist.  Mag.,  N.  Y.  Times,  8  pt. 

1:  286-«,  May  1918. 
British  shipping  losses.    Cur.  Hist.  Mag.,  N.  Y.  Times,  8  pt.  1:  387,  June 

1918. 
Full  record  of  sinkings  by  U-boats.    E.  Geddes.    Cur.  Hist.  Mag.,   N.  Y. 

Times,  8  pt  1 :  284-6,  May  1918. 
Losses  to  merchant  shipping.    Independent  86 :  130,  Apr.  24,  1916. 
Shipping  losses  of  the  warring  nations.    Sci.  Am.  US:  372,  Oct  21,  1916. 
Submarines  increasing  failure.    Cur.  Hist.  Mag.,  N.  Y.  Times,  8  pt  2:  446-9, 

Sept.  1918. 
Toll  of  the  submarines.    World's  Work  30:  142-4,  June  1915. 
U-boat  sinkings,  and  U-boats  sunk.    Cur.  Hist.  Mag.,  N.  Y.  Times,  7  pt.  2: 

83-4,  Jan.  1918. 
War  losses  in  .ships.    Lit.  Digest  51 :  329,  Aug.  14,  1915. 
War  risks  of  shipping.    Spectator  112:  819-20,  May  16,  1914. 


11   •' 


'''!•■ 


ill 


INDEX 


Airicullure,    Iom   of,    In    inradcd    trrrilory, 

Albania,    >S7. 

Alcoholic  ipirili.  Stt  Stimulantt  and  nar- 
cotics. 

AInria,   Hank  of,  M,  W,    lit,    117,   lU, 

Alluwancci.     Set  Pentiona  anil  allowancci. 

American    Bankrri    Aaaociation,    104. 

American  Committee  for  Armenian  and 
Syrian    Relief,   Igu. 

American    Foreipn  Securitiei  Company,  88. 

American  aecuntiei  plan,  n-14. 

AmuKinrnts,  tax  on:  Great  Britain,  II, 
M;  Au»lralia,  i«,  iT:  Prance,  »t,  104: 
United    Stalea,    171,    180. 

Anilo-Prench   loan,    15,    St. 

Arfentine,    Mt,    tM. 

Armenia:   mawacrea  in,  180. 

Armistice,  effect  of,  on  financea  in  United 
Statei,    171:    in   Germany,    ItT. 

Atguith,    H.    H.,    14. 

Aiiiulth,    Lady,    IS. 

Auitralia:  condition!  at  outbreak  of  war, 
68;  expenditure!  (1VI4-1S)  61,  (ItlV 
H)  SS,  (1»1«17)  »5,  (1917.18)  68: 
loam  (1914-18)  S3,  (1818-17)  6«,  (1»17- 
18)  68-60;  taxation  (1816-16)  64,  (1(16- 
17)  6«,  67;  coati,  60:  mortality,  171; 
war  relief,  M4;  bibliotraphy,  Stt. 
Auatria-Hunyary:  financial  aituation  at  be- 
finnint  of  war,  886;  banking  and  cur- 
renc;-  (1814)  886-838,  (1816)  840, 
(1816)  141,  (1817)  144,  845,  (1118) 
148,  160;  expenditurea,  (1814)  136, 
(1816)  141,  (1817)  144,  145,  (1818) 
850;  borrowing*.  (1814)  888,  (1916)  141, 
(1916)  141-144,  (1817)  (47-149,  (1918) 
161,  861;  taxation,  151-164:  aummary, 
156,  167:  mortality.  181.  883;  property 
loaa,  184,  187;  ahipping  losaea,  189; 
bibliography,    309,    318. 

Baker,   Newton  D.,  166. 

Balkan  Wara,  efTecta  of:  in  Great  Britain, 

3;    in    Roumania,    181;  in    Turkey.    166; 

In    Bulgaria.   Ml;    loaa  of   life,    170. 

Balkana,    the:    mortality,  180;    war    relief 

m.  193. 
Bank  Act    (Great   Britain),   auapenaion   of. 

Bank  notes.     S**  Note  circulation. 

Banking  and  currency:  Great  Britain, 
8-6,  36.  86.  806,  318:  Canada.  43,  381, 
Australia.  61,  311;  New  Zealand,  61, 
India,  65;  Prance,  71-76,  87,  88,  95,  »6, 
107-110,  808,  111;  Russia.  119,  113-115. 
118130.  138186,  187,  138,  315;  Ital>. 
141-143,  147,  149151;  United  Slates 
161,  163,  164.  80S.  314:  Belgium.  183, 
184;  Japan,  187.  189,  318:  Roumania, 
193:  Germany,  197-199,  101-805,  116-118, 
MOIM.  117.  188.  309,  318:  Auatria- 
Hungary,  136-138,  140.  141,  144,  145, 
149,  160;  Turkey,  156,  157,  169,  160, 
318;  general  bibliography,  303,  306,  308. 

Banks  (sute):     Algeria.   85,  90.   111.   117, 

118;  Naples,   148;    Sicily,    148:    Belgium, 

183;  Japan,    187;    Ottoman    Bank.    156, 

tS7;  the    Netherlands,    196.      St*    alio 


Kngland.    Bank    of;    Prance,    Bank    e<i 
Kuaaia,    Imperial    Bank   of;    Italy,    Bank 
of;     Keichabank;     Imperial    Auatro-Hua- 
gsrian   Bank. 
Bark,   P.   S.,   Ill,  111,  117,  181,   188. 
Barrtol,  M.,  876,  877,  184. 
Beer.     St*  Slimulanta  and  narcoiica. 
Belgian    Relief   Commission,   188. 
Belgium:   banking  and   currency,   181,   184; 
taxation,     184:     expenditures,     186;     ad- 
vances   from    Allies,    86,    184,    185,    167; 
morUlity,    171,    871,    177,    881;    property 
loss,  184.  886,  887;  shipping  losses,  889. 
war  relief,  894;  total  coat,  186. 
Btwaarplaals*H,   (18,   69. 
Bibliography:     general,     301,     310;     United 
Sutes,  30.1,  313:  Great  Britain,  806,  817; 
France,    3U8,    813;    Grrmany,    809,    317; 
Ruaaia,   315;    British    Kmpire,  311;    Italy, 
316;    other    belligerents,    818;    caaualties, 
389;    destruction   of   property,   819;    ship- 
ping   losses,    330. 
Boer   War,   3,  8,   870. 
Bolshevik     regime,     financial     situation     in 

Russia  during,  137-139. 
Bonda  (government):  Great  Britain.  7. 
8.  11,  IS,  15,  II,  84,  18,  .1834;  Canada, 
45,  46,  48,  60;  Australia,  53,  66,  58,  69; 
New  Zealand,  61,  63;  India,  66;  France, 
70,  80-83,  89,  98-100,  110,  111,  117; 
Rusaia,  111,  181.  185.  116,  118-130,  135, 
ISO;  Italy,  143  146,  148,  151,  166; 
United  Stales— rer  Liberty  Loans;  Japan. 
190;  Germany,  807,  808,  110,  119,  114, 
119,  130;  Aiutria-Ilungary,  139,  141-148. 
147,  148,  161,  151;  Turkey,  160. 
Borrowings.     Stt  Domestic  loana;   Foreign 

loans  and   advances. 
Bourse,    effect    of    war   on:      French.    71; 

Russian,    119;    Auatro-Hungarian,    186. 
Boy    Scouts,   164. 
Brandt,  Otto,  101. 
Brasil,   195,   166,  189. 
Breat-Litovsk,    treaty    of,    137. 
Budapest,   Bank  of,   151. 
Budgeta:     Great   Britain,   8-10,   16,   19,   16 
19,   30    (note),   S6;    Canada,    44,    46,   47, 
48;   Australia,  61.  66;  New  Zealand,  61; 
India,  66,  66;  South  African  Union,  69; 
Prance,    71,    79,    86,    9«,    101,    104,    106; 
Russia,     119-113,     117.     118,     111,     140; 
lLV'''-J*':    Ufa.    188,    191;    Germany. 
106.    106,    113,    1)5,    818.    119,    US,    115. 
131,     131;     Austria-Hungary,     141,     146. 
147,    150,    161,    153,    154;    Turkey,    158, 
160, 
Bulgaria:     condition   at    outbreak   of   war. 
161;  financial  aid  of  Germany  and  Aua- 
tria. 168,  861;  taxation,   263;   debt,  163; 
total  cost,   267;   mortality,  171.  171,   177. 
Business  transactions,  tax  on:     Great  Brit- 
ain, 37;   Canada.  44;   France,   IIS;   Rua- 
sia,   181;   Italy,   146,   146,   163,    154,   167. 
168;    United    States,    171,    180;    Japan. 
190;    Germany,    119,    ISO;    Austria-Hun- 
gary, 16S. 

Cable     rates.       S**    Telegraph,     telephone, 

cable  and  radio  rale*. 
Calver,   Richard,  116. 


334 


INDEX 


'I 


i 

r 

» 

i 

l.tiiiilii:    tinaniial   comlilion  at   outbrHk   ol 

war.      ti;      cxprnililur.'t      ll»Mli>      41, 

(IRISIA)      4&.      (IIIIA'IT)      «1.      (IDITIHI 

«H.     (I»ll|.|9)     &U;     loam,     (UlA-ini     4.'i. 

(IVinlT)   4A,  (I»I7'18)   4t,   (IStSlO    til; 

tatali.n      n9l4'li)      44.      (1»16'IH)      40. 

(IRln-l7)     47,     (IBI7  1K1     *»:    total    co.t, 

51;   niurtality,  «rt.  «78;   »ar   relief,  l»4. 
C'anuallli'i:      Jfad,    «7i)  t78.    »77;    miiiiii, 

970,   t7S;   priionrrt.   i7t.   I7t:    wounded. 

371  t73,    lt7«;    diKaned.    f77't7»;    biblior 

r.ll)liy,    :lt9. 
I'hiM   l.alior  I.aw,  taxet  under,   181. 
Chini,    m.i. 

Cigarettei.      Sff    Stimulanit   and    narcotic. 
Civil   War.   11,   IB.   8,1,   117,  S70. 
Coal:       tan    on,    M«.    »»7;     ileatructinn    of 

mine*.  88B. 
Commirce:     Canada,  48;  New  Zealand.  <I1; 

Indii,  83;   South  .xfrlcan  I'nion.  n8.  M; 

France,    104;    RuMia.    KOItt,    lt«.    1S7. 

139;   Italy,   141.   14.1.   1.17;   I'nited  Slalri>. 

17(1;     Japan,     186  188;     Roumania.     19S. 

Stf  alto  Cu«ionii  and  exciie  duties. 
Compiil'ory    ttihftcription    to    loans;    threat* 

vned     .1    Australia.   B<1;   enforced   in   New 

(TraLind.    «i.    83. 
Coprnha«tn   War    Study   Society,  *flS,   «7n, 

»:.1.   «79. 
Co{i>,.      ^ee  Indirect  costs;  Summary  ot  di- 
rect costs;  Total  cost-.. 
Courts   I  Kmergency   Powers)    Act.   4   (note). 
Crammnnd.    Kdirar,  2ilfl.  »(18,   J7.1. 
Crlmcin    War.    8.    «70. 
Crown    (Austria- Hungary  I.   depreciation  of, 

840.  Ji-.l. 
Cuba.  19.1. 
Currency.     See  Barking  and  currency;  ahr 

P.n(irr   currency. 
Currency  and   Bank  Note  Act   (Crcat  Brit 

ain).    4. 
Customs   and  excise  duties:     Oreat   Britain, 

in,    18,    tl,    88;    Canada.    44,    49;    .\us- 

Irilia,   ,17:    New   7i-aland.   M:    Indi.i.    (1.1; 

South    .African    Union,    89:    France.    98. 

104,    ll!l;    Russia,    139;    Italv.    14.1,    1S1. 

1R7;     United     P'atei,     180.     181:     Japan, 

188;   Germany.  215,  ItA,  *31,   tSt;    Aua- 

trin  Itimirarv.    !.15;    TurVcv.    2-"7.    2.1S. 

Dardanelles.   120. 

Deaths.      Sre    Mortality;   atxn    Ca'«ualties. 

Debt:  C.reat  Britain.  IS.  19.  22.  Ifi.  36; 
Canada,  48,  47;  .Australia,  R,1;  Frani-e. 
N4.  8.1.  98,  101,  102,  117  118.  Russia, 
120.  1.171S9;  Italy,  147149,  IM.  1.17; 
Belgium.  188;  Japan,  189;  Roumania, 
192;  Greece.  194:  Germ.?nv,  223,  2/S, 
S3S;  Austria-Hungary,  244  247.  (49. 
2.1.1;  Turkey,  2.17.  2.19.  2i;i;  Bulgaria, 
2«3;  Molhnd.  29,1;  Swit/crhnH.  29«: 
Sweden,  Denmark,  Norway.  297;  bibliog- 
raphy.  312. 

Delhruck.    Dr..  »0«. 

Denmark:  loss  of  vessels.  289:  war  relief 
In  29.'I;  d'rect  costs,  297,  298;  note  cir- 
culation, 298. 

Depreciation  of  currency:  Great  Britain. 
12:  Fr.mce.  108:  Ru«sia,  123.  129.  130, 
13.1;  Italy.  143,  149.  1.11;  Roumania.  192, 
193;  Germany.  205  210.  217.  »«o.  222, 
224;  Austria-Hungarv.  240,  147,  250, 
2.14.   25.1:    Bulgaria,  288. 

Dernberg.    Bernhard.   213,  181. 

■Destruction  of  ptoperty.  Set  Property 
loss. 


I  leyastation.     Set    Property  lost, 

Hiavid   Bey,  (AS,   t«l. 

I  lock    dues.      See    Transportation, 

homestic  loans:  Great  Britain.  7,  lt-16, 
24,  28,  19,  32,  i:i,  42;  Canada,  «ft,  M. 
48,  SO,  61;  Australia,  68,  6J.  t<l,  6<,  M, 
i;0;  New  Zealand,  «2-«4;  India,  M; 
Prance,  7«-78,  81  84,  89,  98,  100,  lOt, 
II0II2;  Russia,  122,  126,  1»«,  130,  lU. 
138.  141:  Italy.  143,  144,  147,  148,  16t, 
16A:  United  States — jre  Ubcrty  Lansi 
Japan.  190;  Germany,  207.  20».  21U-tll, 
219,  224  229,  230;  Austria-ll  iingary. 
2.39,  (41-244,  247(49,  (61,  29'.^;  Turkey, 
200;  Swiiterland,  Sweden.  290;  Norway. 
IVnmark,  297. 


England,  Bank  of:  fluctuations  in  rates. 
3;  emergency  powers  of,  4.  6;  Treasury 
bills  disrountea  by.  A;  loans  on  bonds, 
7;  ailvances  of,  16,  44,  192;  loans  from, 
22;  sales  of  bonds.  (8;  statistics,  IS,  36; 
comparison  with  Bank  of  Prance,  76; 
cnmiiarison  with  Reichsbank,  20(;  stalls- 
ths.    3(:. 

Irgbind.     Set   Great    Britain. 

Istate  and  inheritance  tax:  Great  Brit- 
ain. 9.  (1.  38;  .Australia,  6(,  67;  New 
Zealand.  HI;  Prance.  104,  113;  United 
States,  163,  167,  172,  179;  Japan.  190; 
Greece.  194;  Germany,  (16,  tS6,  (80; 
\ustria-.11ungary,    253. 

Cxcesa  prcfits  tax.  See  Profii-  (excess  and 
wrir).    tax   on. 

'xchange,  rate  of.  5>'e  Depreciation  of 
currency 

-'xchequer,  Chanecflor  of;  pavers  and 
duties,  6,  14.  See  also  Llo>d  George, 
David;  McKennt,  Reginald;  Xiaw,  Bonar. 

'xchequer   bonds,  8.    15.   2(.  2.^.  (8.   i2. 

Exemptions  from  taxation:  Great  Britain. 
17.  24;  Canada,  45.  49.  60;  Australia, 
.11,  .14;  New  Zealand.  61;  South  African 
Union.  6(::  Prance.  77;  Italy,  144,  148, 
1.10;  U>'i:ed  States,  163,  106-168,  17«, 
175.  179;  Austria-Hungary.  14S-S4(: 
Bulgaria.   (62. 

•Expenditure!!,  tables  showing:  Great  Brit- 
.vn.  n.  D.  9,  II.  14.  19.  (7,  (9,  30,  40. 
41;  Canaca,  48.  61;  Australia,  63,  66; 
New  Zealand,  64:  Prance.  79.  >6,  87,  (0, 
ton,  118;  Russia,  120,  140;  Italy.  14(. 
159:  United  States.  161,  161,  166,  173; 
Japan.  ISli;  Germany,  (06,  (St:  Hol- 
land, (95. 

"xports.     Set  Commerce. 

'External  loans.  See  Foreign  loana  and  ad- 
vances. 


Family  allow  inces.  See  Pensions  and  al- 
lowances. 

Farr,    Dr.,    (r6,    (77. 

Federal    reserve   banks:     aid   of,    163,   164, 

Finance   Act    (Great    Britain),   9. 

Finance.  Minister  of:  France,  87.  89.  96, 
101.  114  (tfe  also  Ribot,  Alexandre  P.); 
Russia,  IK',  1(1,  123,  1(7,  1(9;  Italy, 
168,  159;  Belgium,  184;  Japan.  186; 
Germany.  i:0(,  (08.  (09.  218  Isec  also 
Helfferich,  KatI;  Von  Roedern,  Count); 
Austria-Hurgary,   241,   (46. 

Finhrd,  281. 

FirsofT.    M.,   127. 

Foodstuffs:  tix  on.  18,  65,  139;  increased 
price  of,  98,  109.  143.  161,  216,  228,  260; 
destruction  of,  286,  290. 


INDEX 


335 


Porcifn    loam   ind   Idvancr*: 

Grcal  Britain:  lo  Can><U,  4S:  ta 
Fruncr,  it.  M,  llf;  In  Kuiiii.  IIA, 
in,  I3»:  to  Italy,  Hi,  Uit,  lit.  15(1; 
to  Brliium,  Hi;  to  Koumania.  lOl: 
to  Serbia,  1114:  from  Canada,  tt: 
(ruin  Jaiwn,  ti,  ICO;  from  I'nltcd 
Stain,    IS,  t4,  ti.   »t.   14. 

Can^ila:       lo    Great     Britain.     tS;     from 

Great  Britain,  4t;  from  United  States, 
4.i,    4ll. 

France:  to  Belgium.  »i,  \M;  m  Mon- 
ti nefm,  Serbia.  Greece,  g6:  in  RuMia, 
U«.  lis,  IM:  from  Great  Britain.  81, 
M  ll«:  from  Japan,  lit.  IM:  from 
I'nited  Statea,  IS,  TA,  St,  8S.  M,  100, 
US:    from    nentrali,    IIS. 

Ruaaia:  from  Great  Britain  ami  France, 
Itfl.  Il«.  138.  1J»:  from  I'nileil  State*, 
Its.  IS«,  188:  from  Japan.  It»,  1S6, 
ISO. 

Italy:  from  Great  Britain.  148,  14S, 
US.  Ift«;  from  United  Statea,  148, 
1.1S.   liUI. 

United  States:  to  Great  Britain,  15,  S4, 
SA,  SS,  S4:  to  Canada,  4S,  4«:  to 
France.  18,  T«,  8S,  88,  SS,  100.  IIS: 
tu  BelRlum,  188;  to  Ruiaia.  ItS,  IS«, 
ISS:  to  Roumania,  ISS;  to  Serbia,  194, 
to    Germany,    SOS. 

Belgium:  from  France,  SA,  188:  from 
Great    Britain  and   United   Statea.   185. 

Jjpa.i:  to  England.  SS,  ISO;  to  France, 
IIS.   ISO;  to  Ru'K'a,   ISS,   ISA.   ISO. 

Germany:  to  AustriaHungary,  tSb, 
241:  to  Turkey,  S87.  188,  tAO;  to 
Bul|taria.    lAI;    from    Turkey.    SAO. 

AustriaHungary:  to  Turkey,  t57,  SAO; 
to    Bulnna,   S«S. 

Slatiatics     SAT. 
Forest,  Sir  John,  58. 
Prance.    Bank    of,      loans    of,    71:    relation 

to  government,  TI,  TS,   107;  gold  supply, 

73.  la,  7A,  81.  88.  108.  110;  advances  of. 

74,  7A.  79.  84,  87.  98.  98.  107,  110,  US, 
117:  note  issues.  74-7A,  87,  »<t,  110:  cm- 
(■irisur  with  Bank  ot  England,  "A;  sta- 
tistics,  78,   74.   110. 

France:  situation  at  outbreak  of  war,  70- 
72;  barking  and  currency.  (1»14>.  7S- 
7«.  n9in)  87,  88.  M917)  S8.  9A.  (1918) 
107-110;  loana,  (1914)  78-78:  expend!- 
turrs.  (1914.  1915)  78,  79,  (I91A>  85-87, 
(1917)  9A.98,  (1918)  lOA;  borrowing, 
(1916)  80-88,  (191A)  88-90,  (1917)  98- 
103,  (1918)  110-llt:  taxation,  (1918) 
88  (191A)  90-95,  (1917)  lOS  105.  (1918) 
11S-118:  effects  of  invasion  of  territory, 
UA:  comparison  with  other  countries, 
117:  summary,  lis,  SA7:  mortality.  971. 
t7S.  »75.  S77-S79.  SSI.  S88:  property 
toss.  S84-S87:  shipping  losses,  989;  war 
relief.   S98     S94:    bibliography,    808,    St3. 

Franco- Prussian   War,    199.  t70. 

Fraser.    Drummond,   18,    3S. 

French  Revolution,  188,  105. 

Germany:  preparation  for  war,  ISAIOS; 
banking  and  currency.  (1914)  SOt-lOS, 
(191A17)  115-118.  (1917-18)  ISO  ttS, 
(191819)  tST.  SS8:  expenditures.  (1914) 
f05.  tOA.  (19151A)  108-110,  (1917-18) 
nt,  ISS,  (1918-19)  SS8;  borrowings, 
(1914)  107,  108,  (I9I5-1A)  910118; 
(191A-17)  119.  (191718)  St4.  (1918-19) 
tt9,  ISO;  taxation,  (1916-lA)  t18-tl5. 
{191A17)     119,    110,     (1917-18)    115-117, 


(I91SI9)  XSOISS,  debt,  (ISt7-lS)  SSI; 
rHvmt,  SSt-SSt;  summary,  t«7;  mor- 
tality, S7I,  ITt,  t74-l7t>.  SSli  property 
loss,  SS7:  shipping  loiMi,  US;  war  r«> 
'•ef,  ns:   bibliofraphy,   SOt,  St7. 

r.i  'en.  Sir  Robert,  S78,  STT, 

(lladstune,  Williaoi   E.,  S. 

(iold  supply:  Great  Britain.  14,  SS;  Auf 
tr,i!ia,  5t;  New  Zealimd,  61;  India,  M; 
France,  78,  7t,  7A,  88,  108-110;  T.usaia, 
lis,  1SS1S4,  lis,  ISO.  I8t-ISS:  Belgium, 
18.1,  184:  Japan,  1S7  190;  Germany.  194- 
199,  SOS,  105,  S17,  SIS.  tfl.  HT;  Aus- 
tria-Hungary, S8«,  187,  140,  144,  141; 
Turkey.    S5t. 

Great  Britain:  prewar  conditions.  i| 
banking  and  currency.  (1914)  t-S;  loan*. 
(1914)  0-8,  (1918-lA)  IS-IA,  (IS1S-I7) 
tlSA,  (1917-18)  18,  SS,  (I91S-1S)  SI-IS; 
expenditures,  (1914)  S,  (I91S-IS)  10,  II, 
(I9IA17)  19,  SO,  (ISI7-IS)  17,  (191SI9) 
19-81;  taxation.  (1914)  9,  10,  (1916-IS) 
1A19,  (191A.17)  30  M,  (I917-IS)  IS,  IT, 
(19IS-1S)  S0-S9;  ritumt,  40^49;  total 
cost,  81,  41,  S«7;  mortalily,  S7I,  I7S, 
175177.  179;  property  lost,  187;  shlppiai 
losses,  189,  190;  war  relief,  194;  biUior 
raphy,  80A.   |I7. 

Greece:  jdvances  from  Alliea  to,  SS.  I«7; 
expei.  :  ..res.  taxation,  etc.,  194;  mortal- 
ity.  171.  177;  shipping  losses,  189. 

Greeks,  massacre  of,  ISO. 

Guatemala.    198. 

Guyot,   Yves,  81   (note  I),  175. 

Haiti,  195. 

Havenstein,    Rt..'olpb,    101,    115. 

IMfTerich.    Karl,   iOS,    !:07,    109,   110,    111, 

914.    119-110. 
Holden,   Sir   Edward,  41. 
Holland:     advances  to  France,  111;  sale  ef 

securities    9f,   III;    shipping   losses.    IS9; 

war  relief.  I9S;  direct  costs,  198,  I9S. 
Hnnduraa.    196. 
Hughes,    William   Morris,   ST. 
Hungary.     Sn  Austria-Hungnry. 

Imperial  Austro-Hungarlan  Bank:  gold  re- 
serve, 186,  1ST,  141,  146;  notes,  187,  140, 
ISO;  advances  of,  137,  149;  loans,  189. 
142;  sUtistics.  146. 

Imports.     Srt  Commerce. 

Income  tax:  Great  Britain.  9-11.  17,  IC, 
II.  14,  SS,  37,  40;  Canada.  44,  49;  Aus- 
tralia, 64.  67,  69;  New  Zealand,  Al,  OS; 
India,  SA;  South  African  Union,  A8.  A9; 
France,  71,  88,  91,  99.  94,  103-106.  US, 
114;  Russ:  .  ISS.  181.  18S,  ISA;  Italy. 
14A,  147.  168,  167,  159;  United  States, 
lAl.  1A7,  170,  176,  177.  178.  Ill;  Japan, 
190,  191:  Greece.  194:  Germany,  190, 
197,  114.  931;  Austria-Hungary.  168. 

India:  conditions  sf  beginning  of  war,  08: 
expenditures,  A6-A7;  loana,  M;  gift  to 
Great  Britain.  86.  A7;  taxation.  A5,  86; 
war  relief.  294. 

Indirect    costs,    269-298. 

Inflation  of  currency:  Great  Briuin.  86, 
3A:  France.  76.  108,  109,  US;  Russia. 
ISO,  188;  Italy,  143,  147.  160,  151;  Ger- 
many, SOI.  203-208.  210,  116.  110,  114, 
218.  234.  Austria-Hungary,  148,  S44,  SSI: 
Holland.  IS.'i. 

Inheritance  tax,  Stt  Estate  and  inheri- 
tance tax. 

Insurance  (,,itea  and  tax):  Great  Britain, 
5;   Caii.ida,   44:   Prance.  US;   Italy,  164; 


336 


INDEX 


H 


,1 


i. 


Unilid  Stales,  172,  17»;  Jainn.  1S«,  187; 

German),    al8,    »«3.    22.i,    231-233;    Aus- 

tria-lluMijary,     *J4ti. 
Inl  rnal    hian».     .SV«*    Domeiiic   loans. 
lt;i)v:      prewar   condition    and    preparation, 

142;    expenditures    (1914161    142.    (Itiet 

147,  (19171  I.M.  (1918)  I5u;  banking 
and  currency.  (1914-15)  142,  (I91A)  147, 
(I9I7-IK>  149161;  loans.  (19141S)  143, 
(I91l'>)  147149,  (1917)  162,  (1918)  16(1, 
1,'>7;  tnxalion,  (1915)  144'14A,  (1913) 
149.  (1917)  153166,  (1918)  167'l.'i9; 
suniniarv,  I.W,  IBO.  267;  mortalitv,  271, 
272.  277,  283;  property  losses,  284,  287; 
shippinii  losses.  289;  war  relief,  293; 
tiihliotiranhy,  320. 

Italy.     Hank    of:      advances    of,    143.    144, 

148.  ir>2.    LIA;    note   issues,   ISO,    151. 

Jafff.    Professor,    225. 

Japan;     situation  at  outbreak  of  war,   18A; 

liaitkinK  and  currency,   187-189;  .expendi- 

ittres,   187.  188.   191;   taxation,   190,   191; 

total     costs.     101;     mortality,     272,     277; 

shipping  los«es,  289. 
Jews,    massacres    of,    280. 
J*M,    Gaston.   70    (note  2).    74    (note),  77 

(note  3).  84   (note   2),   105. 

Klotz.    Louis,    101. 
Kuhn,   Hermann,  209. 

Land    tax.     Svc    Property,  tax   oti. 

Law,   Booar,  2ii.   2^.   29,  30.  30,  271. 

Legislation  (financial):  Great  Britain.  4. 
9;  .\ustralia.  (iO;  New  Zealand,  02:  Italy, 
140,  1.14;  I'niied  States.  162,  166,  ie7- 
170.  173.  17,S  177,  181;  Germany,  199, 
2111,   22ii. 

Leninr.    Nikolai,    138. 

Leroy-Beaulieu,    Professor.   89. 

Liberia.    193.   287. 

Liberty   Loan  .Acts.   1fi».  1«7,  108,  17S,  176. 

Liberty  Loans  (ITnited  States):  leffislation 
concerning,  IfiJ,  107,  1(18.  17S,  175;  tax 
exemption.  1«3.  1«7.  1«8.  174.  176;  sale 
and  ilistribution,  163.  1K4.  168;  aid  of 
banks  and  others.  163.  164;  number  of 
subscribers.  168,  169,  175,  176;  resume. 
182. 

Liquor  traffic.  See  Stimulants  and  nar- 
cotics. 

Lira,  depreciation  of,  143.  149.  ifll. 

Lloyd    George.    iLivid.    8.   9.    10.    11,   S». 

Loan    Bureau".  204.   207.  212,   217. 

Loans.  St'e  Domestic  loans;  Foreign  loans 
and   advances. 

Loss  of  life.     See  Mortality. 

Loss   of  property.      See   Property   loss. 

Loss  of  ships.     See  Merchant  shipping. 

Luxuries,  tax  on:  tireat  Britain,  21,  26, 
37,  40;  Canada.  44;  France.  118  116; 
Italy.  164.  157;  United  States.  172, 
ISO;   Germany,  230. 

McKenna.  Reginald,  II,  13,  16,  17,  10,  23. 

27  (note).  41. 
Macedonia.  280. 
Mark:    redemption  at  franc  value,  108, 117; 

circulation  in    Belgium,  184;   depreciation 

of.   210.   ai7.    222. 
Marshall,    .\..    275.    277. 
Ma«»ncr<s.    280. 
Medicines  (patent),  tax  on:     Great  Britain. 

18.     Canada,     44;     France,    103;     United 

Stjtes,    172;    Italy.    164. 


Merchant  (hipping:  grota  tonnage  loit, 
289;  loss  by  quarters,  299;  monetary  val- 
ues, 29U;  loss  of  cargo,  290,  291. 

Military  tax:  France,  93;  Italy,  146,  147, 
154. 

Mines  and  mining:  South  African  Union. 
68.  69;  France,  93;  Japan,  189;  Belgium, 
284-286. 

Montenegro:  advances  from  France,  86; 
direct  costs,  196;   property  lots,  287. 

Moratoria:  Great  Britain,  4,  6;  Canada, 
43;  Australia.  52;  New  Zealand,  61; 
France,  71;  Russia,  119;  Belgium,  183; 
Germany,  201;  Austria-Hungary,  236; 
Bulgaria,  262. 

Morgan  (J.  P.)  and  Company,  financial 
aid  of:  to  Great  Britain,  24;  to  France, 
88.    99. 

Morocco,   70. 

Mortality:  in  10th  century  wars,  270;  in 
first  two  years  of  World  War,  271;  total 
casualties,  271,  272;  value  of  live*,  274- 
277.  284;  deaths  from  disease,  277-379; 
deaths  among  civil  population,  279-283; 
race   deterioration,   283. 

Motor  spirits  and  vehicles,  tax  on:  Great 
Britain.  18.  21.  37;  Canada.  49;  France, 
114;  Italy,  146,  146,  165:  United  State*, 
172,    180. 

Mustapha  Pasha.  280. 

Naples,  Bank  of,  142. 

Napoleonic  Wars,  11,  39,  40  (note),  276, 
277. 

Narcotics.      See    Stimulants   and    narcotics. 

National  War  Saving*  Committee  (Great 
Britain).    33. 

Nerkrassof,   Nicholas.    132,   138. 

Netherlands.    Bank  of   the,  29!i. 

Neutral  nationa,  co*t  to:  Holland,  280, 
293.  295,  298:  Switzerland,  293,  296, 
298;  Sweden,  289,  293.  296-298;  Norway. 
289.  293,  297,  298;  Denmark,  289,  293, 
297.   298. 

New  Zealand:  expenditure*.  61,  83;  loan*, 
62-64;  taxation,  61-64;  summary,  64; 
mortality,  272;  war  relief,  294. 

Nicaragua,   195. 

Nicholson,  J.  S.,  278,  277. 

Nitti,   Francesco   S.,  158,   l.lff. 

Norway:  loss  of  vessels.  289;  war  relief 
in.  293;  direct  cost*,  297,  29S;  note  cir- 
cul.-rtinn,    298, 

.Vote  isrue  and  circulation:  Great  Britain, 
4,  5,  24.  26:  Canada,  43,  44;  Australia, 
.12;  New  Zealand,  61;  Prance,  73-78,  87, 
96,  ins.  110:  Russia.  119,  122-126,  127- 
129.  1.13.  135,  138;  Italy,  143,  147,  150- 
l.'>2.  n«;  Belgium.  184:  lapan.  189: 
Germany.  197-200,  202-206,  215-217,  220, 
221,  227;  Austria-Hungary,  237,  239241, 
243-245,  247.  249.  260;  Turkey,  267; 
neutrals,    298. 

Ottoman  Bank:  direction  of.  2.56;  change 
in  control.  257;  loans  to  government, 
257;    note   issue?,    257. 

Panama,   195. 

Panama  Canal   bonds.    163. 

Paper  currency:  .Niistralia.  52;  France, 
109;  Russia  120.  123.  127.  128.  ISO.  135, 
138-140;  Italy,  150:  Ilelrlum.  184;  Japan, 
187,  189;  Roumania,  1n2.  193;  Ormany, 
197,  202,  204,  205  220:  Aiistria-Hun- 
rarv.  240.  254;  Turkey,  8.59,  860;  Bul- 
garia, 883. 


INDEX 


337 


Peace  Conference  Committee  on  Repara- 
tion!, tw. 

Pension*  and  allowances:  Great  Britain, 
9;  Canada,  «7:  Australia,  S4,  67;  France, 
7«,    H,    »8;    Italy,    168;    Germany,    lU, 

n»,  fiiMs. 

Petty,  Sir  William,  t74,  177. 

Plener,   Baron   von.   147. 

Poland:  note  circulation  in,  t40;  nortal- 
ity,  MI;   property   loss,   S84,   tg«,  M7. 

Port  dues.     Set  Transportation. 

Portugal:  direct  costs,  1116,  M6;  mortality, 
t7f,  t77;   shippinc  losses,  t89. 

Postal  money  oraeri,  made  legal  tender,  6. 

Postal  rates:  Great  Briuin,  18,  87,  88; 
New  Zealand,  81;  Prance,  04,  108;  Rus- 
sia. Itl,  187;  Italy,  146,  166;  United 
Sutes,  178;  Germany,  116,  118,  110,  181. 

Postponement  of  Payment*  Act  (Great 
Briuin),  4. 

Production,   loss  of,  ISl-ISS. 

Profits  (excess  and  war),  tax  on:  Great 
Briuin,  17,  10,  11,  88,  88  40;  Canada, 
48,  47.  4»;  Australia,  64,  i>7;  New  Zea- 
land, 61,  81;  South  African  Union,  89; 
Prance,  98,  98.  lOS,  106,  118;  Russia, 
181,  187;  Italy,  149,  168,  164,  167; 
United  Stales,  167,  170.  171,  174,  177- 
179;  Japan,  191;  Germany,  919,  180,  816, 
887.  130,  131;  Austria-Hungary,  868; 
Turkey,  160;  Bulgaria,  188;  Sweden, 
198. 

Property  loss:  injury  to  land,  184;  to 
buildings,  184,  188,  187;  to  agriculture, 
mines,  etc.,  18S.  186;  in  Belgium,  186, 
184-388;  in  Prance,  186-187;  Russia,  886. 
187;  Poland,  188,  187;  other  countries, 
187. 

Property,  tax   on:     Great    Britain,   18,   88; 
Australia,     68,     67;     New     Zealand,     81; 
Prance,    118;    luly,    166;     Japan,     190; 
Germany,    194,    114,    116,    181;    Austria- 
Hungary,  168. 
ProtopoYich,    A.    D.,   181. 
Provisional    Go/ernment    of    Russia,    finan- 
cial  conditions   under.   181-187. 
Prussia  (East),  property  loss  in,  187. 

Race  deterioration,  883. 

Railways.     Stt  TransporUtion. 

Reichsbank:  Belgian  resources  removed 
to,  183;  notes  of,  197,  199,  101,  801. 
104,  210.  197,  118;  gold  reserve,  198, 
199,  108,  106,  117,  118.  Ill;  control  of 
other  institutions,  198,  116;  aid  to  gov- 
ernment, 199,  101,  104.  107,  810;  rela- 
tions to  postal  check  system.  Ill;  con- 
trol of  foreign  exchange,  111;  tax  on, 
118;  statistica.  108,  111.  lit;  utilisation 
of  Austrian  resources,  146. 

Relief  societies  and  agencies,  194. 

Reparations  Commission,  61. 

Revenue,  table*  showing:  Great  Britain. 
8.  9,  11,  11,  17.  19.  80,  88,  40,  41;  Can- 
ada, 48,  61:  Australia,  63,  66,  67.  68; 
New  Zealand,  61,  64;  France,  86,  87, 
90-91  104.  108,  III;  RussU.  110,  111, 
140;  Italy,  148.  168;  Ignited  Slates.  18C. 
171;  Japan.  188;  Greece,  194;  Gerioany, 
116,  181,  111;  Austria-Hungary,  164: 
Sweden,  198. 

Ribol,  Alexandre  F.,  81  (note  1),  88,  91, 
91,  98,   106,  108.  •       • 

Rothschild,   S.    M.,  von.  141. 

Ronmania:  direct  costs,  IM,  191;  ad- 
vances from  Allies,  167;  mortality,  171, 
177.  ISO;  properly  los*,  184,  187;  ship- 
ping loMca,  189. 


Ruble,  depreciation  uf,  118,   IW,   180,   136. 

Russia:  situation  at  begmniof  of  war. 
119;  revenue  from  vodka.  111;  cxpcadi- 
tures,  (1916)  111,  (1118)  117,  (HIT) 
131,  (1918)  137;  banking  and  currency, 
(1916)  113-116,  (1918)  IM-IIO.  (1917) 
183-133,   (I9I8)    137;  borrawijga,   (llli) 


116,  (1918)  ISO,  (1917)  lli,  (1918)  MS; 
taxation,  (1916)  118,  (191<)  181.  (ItlT) 
138.  (1918)  139:  summary,  119-141,  MT; 
morullty.  171-178.  171,  ITT,  1T9,  Ml; 
property  lo**,  184,  188,  MT;  aiiipptng 
lo**e«,  189;  bibliography.  116. 

Rusaia,  Imperial  Bank  of:  advancea  of, 
119,  113;  gold  reserve,  119,  Ul;  aid  to 
government,  114,  119,  188;  lukicriptiaa 
lo  loan,  116;  note  issues,  IM,  l'<8;  su- 
tistics,    134. 

Russian  Government:  financial  conditions 
during  monarchy,  119181;  under  Pro- 
visional (government,  18I-18T;  daring 
Bolshevik  regime,   137-139. 

Rusao-Japanesc  War,   188,    199,  170. 

Sak^,  tax  on,  191. 

San   Marino,   19S, 

Schiffer,    Dr.,   181-136. 

Securities:  ux  on,  in  Great  Britain,  18; 
in   France,  98;   borrowed  bv  France,  f'l. 

Serbia:  advances  from  Alllc*.  86,  187; 
direct  cosu.  194;  note  circulation  '.a, 
140;  morUlity,  171,  171,  177,  181;  prop- 
erty los*.  184,  187;  war  relief,  194. 

Shipping  lo**es.     See  Merchant  shipping. 

Siam,   196. 

Siberia,  181. 

Sicily,  Bank  of,  141. 

Soutn  'frica,  Union  of:  effect  of  war  on 
mines,  68:  expenditure*,  68,  69;  teawar- 
ftaatjen,  68,  69;  loans,  89;  taxation,  88. 
69;  total  costs,  89. 

Soviet  government,  financial  conditlona  in 
Ruasia  under,  117-189. 

Spain:  advances  to  France  from.  111: 
shipping  losses,  189;  direct  coats,  MS. 

Spiriu.     See   Stimulants  and   narcotiea. 

Stamp  tax:  Great  Britain,  87,  81:  (Canada. 
44;  New  Zealand,  81;  France.  108,  113; 
lUly,  164;  United  Stales,  171,  181;  Ccr- 

,  many,  116,  IM,  181. 

Stimulants  and  narcotics,  tax  on:  Great 
Britain,  9-11,  18,  M,  17,  8T,  40;  Canada. 
44,  49;  Australia,  63;  New  Zealand.  61; 
South  African  Union,  88;  France.  94, 
108,  113,  114;  Russia,  119,  111,  116,  IM; 
Italy,  148.  168;  United  State*.  171,  179. 
180,  181 ;  Japan,  191 ;  Germany.  116.  Ill, 
no,  131;  Turkey,  168;  Bulgaria,  M8. 
Stock  exchange:  I/indon,  1;  Canada.  48: 
France,  71;  Belgium,  188;  Germany.  IM: 
Austria-Hungary,  188.  See  aho  Bourse. 
Suaar  Ux:  Great  Britain,  18.  11,  IT; 
South    African    Union,   It;    France.    91. 

?il  ".*.=."'^"'  "••  '"•  >•••  "Ti  fuly, 

148,    168;    Ormany,    116,    111;    Turkey. 

168. 
Summary  of  direct  co«ts,  MS-IM. 
Super  and  surUx:     Great  Britain,  10,   II, 

17,   to,   II,  87;    Canada.  60;    India.  M; 

South  African  Union,  89;  United  Stalea. 

187,  ITO,  1T4,  178;  Austria-Hungary,  188. 
SurUx.     See  Super  and  anrtax. 
S"«^«n!     1"»  of  ve**el*,  M9;   war  rcUef 

in,  IM;  «r(Mt  coMa,  IM-IM;   note  cir- 
culation. IM. 
Swiiierland:      advance*    to    France,    111; 

sufferings    from    war.    Ml;    war    relief. 

Ml;  direct  costa,  IM,  MS. 
Syria:      maasacres   in,   MO. 


-11 


i] 


■  i 


338 


INDEX 


Taxation:  Great  Dritain,  »,  10,  l«^l«.  «•- 
■«  :ir..4l;  Canada,  44.  ««.  «,  49;  AiM- 
tralia.  64,  60,  67;  Ntw  Zealand,  61,  ««; 
Snuih  African  Union.  <18,  •»:  .?'»"«?• 
:  5,  00-B5.  103105.  112  117:  ««»»'».  ««• 
lt7.  131,  136.  137.  139;  Italy,  »«*1«. 
149.  153165.  1571S9;  United  State*, 
1(15,  170  179,  177189;  Japan,  190.  191; 
C.ri^ce.  194;  Germany.  91S-916.  819.  MO, 
295  897,  930-9:f2;  Austria-Hungary,  9»ii- 
255  •  Turkey,  96H,  200;  bibliography.  305, 
307309.  317.  321.  32*.  3*4.  J»«-898; 
ncutraln.  «9S-*»7. 
Tea  and  other  beverage.,  tax  on:  Great 
Britain.  9  11.  18.  21:  Ca"="l*;*»;  South 
African  Union,  «8;  France,  93,  94,  104, 
Russia,  1*7,  13«:  Italy,  159:  United 
Siale»,  171:  Germany,  230;  Turkey,  268. 
Telegraph,  telephone,  cable  and  "dto 
ralc«:  Great  Britain.  38;  Canada,  44, 
New  Zealand,  01:  France,  94.  103;  Kus- 
«ia.  121,  187:  Italy,  145,  155;  United 
Stales,  179;  Germany.  *16,  »19,  231. 
Thrace,   »80. 

Thrift   SLlmps,  49.   1B8,   174. 
Tobacco.     See  Stimnlanls  and  nircolics. 
Total    costs:     Great    Britain,    31,    41,   *fi7: 
Cinada,     50,     51:     Australia,     «0:     New 
Zealand,    84:    India.    «7;    South    African 
Union.    89;     France.    118,    867;     RuMin, 
140    *«7;   Italy,  l.'i8,  »87;   Belgium,  185; 
Japan,    191:    Serbia.    194;    Greece.    195 ; 
GernLiny.    *»8.    83:,,    836,    »«7;.  Austria- 
Hungary,    256,    80V:    Turkey.    «fll,    M7: 
Bulgaria.   8«,   807:    United    States,    887; 
Holland,  89S,  298:  Switierland,  890.  898: 
Sweden.    Norway.    Denmark.   «98:    other 
neutrals,   898. 
Trade.     See  Commerce. 
Transportation:       Cnnada.     44:     Austr.ilia. 
r,n:    New    Zealand,    r.l;     India.    85,    M: 
France.  108.   114;   Russia.   181.   1*7,  1*9; 
It.nly,    145;    United    Slates,    179;    Japan. 
190;    Cerm.nny.   «*«,   831. 
Treaiury  bills:     Great   Britain,  8-8,  1«,  28, 
«5,  *8,  8*;   France,  76-78.  80-84,  87.  89, 
96.  99.  108.  Ill;  ITnited  Sutea,  99;  Rus- 
sia, 1S6;  Italy,  US,  145,  148,  168;   Rou- 
mania.  192:  Germany,  *SS,  *80;  Austria- 
Hungiry.  «S9.  *40*4S,  *46,  *60;  Turkey, 
2.'i7:   Bulgaria,  862.         .     ^   _    .    v     ,.. 
Treasury   certificiles    (United   States),   181. 
17*. 


Treasury  Department  (United  Stawa): 
credit     operations.    184.     169.     CfttmstM, 

Treasury,  'Secretary  of  (United  States): 
183,   167169,  174,  176,  177.  .... 

Turkey:  prewar  situation.  *68;  banking 
and  currency.  «58,  *57,  «69,  t60;  ev 
penditures,  «57*60;  loans.  *67.  *M.  «60. 
taxation,  258,  880;  total  cost,  «61,  *87, 
mortality.  »71.  *7*,  ^77;  mas*«ret  In. 
880;    shipping  losses,    .89. 

Ukraine,   property  loss    n.  887. 

Union  of  South  Africa,  See  South  Africa, 
llnion  of.  ,.„,,  ,.\ 

United  States:  expenditures  .(1»1S1«' 
161,  (1816-17)  161,  10«.  <1»>T-Al',.\*« 
167,  (1918-19)  17«,  173:  loans,  U»l«-") 
16»;i64,  (1917-18)  1«7-16»,,^(1918-1») 
173-177;  taxation,  (191617)  166;  (1917- 
18)  17017*,  (1918-19)  »7718*:  coats. 
2«7;  mortality.  978.  873.  «78.  *77,  (80; 
shipping  losses,  *89:  war  relief.  *9S; 
bibliography,    S03  306,    313-817, 

Victory  Liberty  Loan,  176.  ,     .    „ 

Vodka:  revenue  from.  121;  effect  of  aboli- 
tion,  1*1.   1*8,   18,.   188.   131. 

Von   Roedem.  Count.  880.  »*«,  »«8.  Ml. 

Votes  of  credit:  Crest  Britain.  6.  7.  11, 
31;  France,  78.  86.  87.  98,  108:  Japan, 
188;  Germany,  199.  *06,  208*10,  »18, 
***,  »«6,  888,  834;  Austria-Hungary,  «46, 

Wakatusuki,  Reijiro,  188.  ..,_.,     .., 
War  chest   (Germany),  196.  198,   !.'(..  »08. 
War   Finance   Corporation.    176. 
War  of   181*.   117.  „    ,       ,  j 

War   profits  tax.     See  Profits   (exceaa  and 

war),   tax   on. 
War  relief,  cost  of,  »93,  «94. 
War    savings    certihcales:      Great    Britain. 

16.    *6.   *8.    83;    Canada,    49;    Australia. 

67.  58,  60;  New  Zealand.  8S;  India,  66; 

United  States,  168.   174. 
Ward.  Sir  Joseph.  84. 
Wealth.   levy    on:      Australia,   M.   M.    69. 

Russia.   ISS.   139;  Germany.  *S4. 
Wehrbeilrag.    198.   197. 
Whiskey.     See  Stimulants  and  nareotica. 
White.  Sir  William  Thomas.  4t,  4T. 
Wine.     See  Stimulants  and  nareotica. 
Witte,  S.  Y.,  IM. 


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